Capital Markets Examiner School, Providence, RI

Assumptions

 Most important point of the modeling process

 Inputs are standard and Scenarios are defined.

 Assumptions determine the accuracy of the outputs

 Assumptions impact Assets and Liabilities

Prepayment Assumptions

 Prepayment of loans and mortgage securities based on interest rate expectations

 As rates mover higher, prepayments slow

 SMM, CPR and PSA

 Peer assumptions versus bank specific assumptions

 Implications of Prepayment Assumptions?