Capital Markets Examiner School, Providence, RI

Repricing Betas

 Peer versus Bank Specific

 Do they generally make sense? Do they account for anticipated changes in the market?

 Betas can differ depending on the current level of interest rates, as well as the direction and magnitude of rate changes modeled

 Implications of Repricing Beta assumptions?

Repricing Lag

 Pricing of deposits is a managerial decision  Management decides the amount  Management decides the timing

 By lagging an increase in deposit rates, management can create a temporary increase in Net Interest Income

 Banks in competitive markets are running a balancing game of rate increases and timing, but can realize a benefit