What Does Wholesale Funding Mean?
According to the American Bankers Association, wholesale funding refers to loans that financial institutions offer with or without collateral, depending on the lender. Businesses can use wholesale funding to preserve their liquidity and manage cash flow.
Collateralized Funding
Institutions like the Federal Home Loan Bank System and the Federal Reserve Bank provide wholesale funding with collateral, according to the American Bankers Association. Banks have traditionally used such funding to manage their reserves at levels subject to government regulation.
Unsecured Funding
Brokers sometimes provide funding in the form of insured deposits to customers without collateral. Wholesale funding serves short-term needs, according to the American Bankers Association.
Benefits
According to the American Bankers Association, the benefits of wholesale funding over obtaining credit from local sources include the ability to decide on the duration of the loan, more competitive rates from more lending sources and better control over costs.
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