We commonly hear from our members that one of the reasons they choose to use either brokered deposits or online listing service deposits instead of FHLBank advances is their desire to improve the institution’s loan-to-deposit/share (LTD) ratio.

We often hear that institutions are motivated in this manner because of regulatory scrutiny to have a high LTD ratio or the institution’s self-imposed operating limits established in policy.

The LTD ratio is a misunderstood and arcane ratio from a bygone era of banking that is not an effective measure and should not be used as a basis for evaluating liquidity or making funding decisions.

In this paper, we will explore the genesis of the LTD ratio, take a short trip down memory lane about the history of banking and describe why the LTD ratio is no longer an effective indicator of liquidity or measure of an institution’s financial condition. We’ll also provide more appropriate and relevant measures that can be used in evaluating an institution’s liquidity profile and liquidity risk position.