Capital Markets Examiner School, Providence, RI

Market Risk

 Inverse Relationship Between Market Interest Rates and Bond Prices

 Does Management (and the Examiner) understand the extent of price risk in the portfolio?  The portfolio must also be examined on an overall basis

The Yield Curve

• The major factor to watch for its impact on the portfolio

• Management and Board focus on the curve

• Remember the cost of liquidity graph – Is the bank maintaining liquidity or reaching for yield/earnings in their portfolio?

• Is the investment portfolio used to offset positions/risks in the loan side of the balance sheet in order to get some balance along the curve?