BAS Presentations - March 2023
Does the Term Structure of the Balance Sheet Present Interest Rate Risk? Asset Structure: • Very long ‐ term as nearly 60% of assets reprice/mature beyond 5 years (peer average is 21%) • Significant optionality with large amounts of residential home loans and callable bonds. Funding Structure: • Deposit base appears stable and not sensitive to interest rate changes.
• In the last rising rate period, savings and money market deposit costs rose only 11% of the increase in Fed Funds Rate.
Option Risk – Callable Bonds
Bank is stuck with a relatively low ‐ yield investment
Interest rates rise
Bond is not called
Bank invests in a callable bond
Funds must be redeployed in a lower ‐ yield environment
Interest rates fall
Bond is called
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