Plansmith Blog

What is Managing Your Own IRR Really Costing You?

Posted by Dave Wicklund on 4/10/19 10:53 AM

Regulatory compliance costs are skyrocketing!

The focus of safety and soundness examinations continues to move towards asset/liability management and ensuring financial institutions are complying with the guidance issued in the last several years.

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Why Regulators Care About Surge Deposits (And You Should, Too!)

Posted by Dave Wicklund on 5/17/18 8:40 AM

So why do we keep hearing about “surge” deposits and how important it is to know if you’re holding any? Well, it might be because in the past 10 years, CD balances in FDIC insured institutions have fallen by $880 Billion; yes, that’s Billion with a capital “B.” And while that may be the bad news, the good news is that over the same time period, non-maturity deposits (DDAs, NOWs, Savings, and MMDAs) have grown by $5.9 Trillion (with a capital “T”).

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Forgotten Components of Interest Rate Risk at Community Banks

Posted by Craig Hartman on 9/26/17 6:30 PM
It is standard operating procedure for community banks to measure interest rate risk by shocking the balance sheet. The percentage change in the Net Interest Margin over several shock levels as an indicator of the severity of risk. While it can provide a clue to the potential loss in the margin, it by no means measures the true risk. The true risk is Equity loss. Equity doesn’t come from NIM but from retained earnings. So to truly measure risk to equity, we must use the entire P&L, not just net interest income.
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Answered: Bankers' 5 Most Painful Questions about Backtesting

Posted by Dave Wicklund on 1/23/17 8:18 AM

Backtesting can be a painful topic for bankers. In this post, I'll answer the top 5 most common questions I hear about backtesting. I'll reference my first post, Independent Review, Model Validation, and Backtesting: Same Thing, Only Different, so you might want to revisit it before reading on. In that blog, we looked at the interrelationship of these three items and brought up a few questions on backtesting.

Specifically, we questioned 5 things: who should do it, how often should it be done, what period should be covered, do you need to backtest model results and assumptions, and why even bother if market rates really aren’t changing.

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OCC: Risks Facing National Banks & Federal Savings Associations

Posted by Jim Fugitte on 1/6/17 2:55 PM

In its Semiannual Risk Perspective, the OCC said strategic risk remains high as banks consider business model changes and face revenue challenges.

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Community Banks: Fun with Funds Transfer Pricing, Part I

Posted by Tom Parsons on 10/13/15 3:00 PM

Yep, the 90s. It was all the rage and I jumped on board like a millennial on the Grateful Dead Fare Thee Well scene – I’m not sure what it’s all about, but I want to say I was there.
 

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When "Market Value" Really Isn't Market Value

Posted by Dave Wicklund on 9/22/15 10:30 AM

“Where is someone that will pay me 1.5X book?; that’s what my Interest Rate Risk model says my bank is worth.” That statement, along with “there is no way this bank could be sold for 1.5X book”, are two comments I’ve heard a few too many times lately from bankers and examiners. While I will let you figure out which group is responsible for each statement, both illustrate a somewhat common misconception that capital values (sometimes called “market value of equity”) from interest rate risk models are meant to reflect actual current and projected institution sales prices. 

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Bank IRR: Backtesting…Necessary Evil or Just Evil?

Posted by Dave Wicklund on 4/16/15 12:00 PM

So if you’re reading this, my second ever blog post, you’ve probably already seen the first one entitled "Independent Review, Model Validation, and Backtesting: Same Thing, Only Different." In that piece, we looked at the interrelationship of these three items and brought up a few questions on backtesting. Specifically, we questioned who should do it, how often should it be done, what period should be covered, do you need to backtest model results and assumptions, and why even bother if market rates really aren’t changing.

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How Much Risk Can Your Community Bank Afford?

Posted by Bill Smith on 4/1/15 11:30 AM
Risk is inevitable in banking, in fact it’s what makes banking profitable. The question is how much risk is acceptable. Recognizing that existing techniques of measurement were sometimes misleading and arbitrary, Plansmith developed a simple calculation called ‘Margin Risk Tolerance’ that defines how much risk each bank can take. Despite the wealth of banking information Plansmith has at hand, we believe risk relates to the individual community bank, and cannot be measured to any peer standard or magic number.

Margin risk tolerance calculates the minimum net interest income and net interest margin necessary to maintain continuing operations. Minimum margin consists of two basic components: 1) earnings needed to maintain an acceptable capital ratio and pay dividends, and 2) earnings needed for overhead.

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Independent Review, Model Validation, and Backtesting for Community Banks

Posted by Dave Wicklund on 3/16/15 2:30 PM

In our ever increasing efforts to educate and inform, our marketing department here at team Plansmith has been on me to contribute to our Blog. Quite frankly, I’m not really a "blog" guy, but for those of you that know me, I’m not short on opinions either. So, given that I sit here stuck on a plane for a few hours, this seems like a good time to take a shot at it.

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