Capital Markets Examiner School, Providence, RI

Examining Yield Curve Issues

 Examiners and bankers alike will have a view of current fiscal and monetary policy and its impact on the level of interest rates.  As well as current local markets  Most importantly, examiners should be aware of how the balance sheet structure may impact the risk management process across the investment portfolio, liquidity and IRR.  How does strategic discussion within the ALCO and Board meetings address structural imbalances and are they well documented?  Re-pricing assets and liabilities  Product offerings  Competition

Yield Curve Shifts

 Shifts are all hypotheticals used to demonstrate the bank’s ability to absorb a range of market conditions.  Interest rate scenarios Parallel versus non-parallel +/- 100 to 400 basis points  The main point is whether the bank is accommodating for changes in the shape of the curve when appropriate.  Dynamic modeling, and “What-if” scenarios depending upon the level of balance sheet complexity  Can be valuable and necessary considering recent M&A activity Shocks Ramps