Bank Analysis School - September 2023

Internal Use Only

Scenario #5 Your bank has significant interest rate risk exposure to rising rates, and you’ve been directed to purchase bonds which mitigate this exposure.

What type of investments would you purchase?

(Zoom poll)

Internal Use Only

Securities Portfolio Impacts Every Component

Capital

• Wide range of risk-weightings can impact capital ratios

Asset Quality Management

• Credit risk and potential for adverse classification

• Risk management: pre-purchase analysis, ongoing monitoring, etc.

Earnings Liquidity Sensitivity

• Interest Income; realized gains/losses

• Cash flow, marketability, pledging

• Term structure may contribute to or mitigate interest rate risk • Price volatility with rate changes