I’ve always said that deposit pricing (a/k/a “betas”), decay rates, and asset prepayments are “the big three” when it comes to interest rate risk (IRR) model assumptions. Why is that? Well, it’s because those are the ones that most people think have the greatest impact on model results, and, as a result, those are the ones that examiners tend to look at the closest. And while I don’t always agree that prepayments matter all that much (depending on the duration of any given institution’s intermediate- and longer-term assets), the current falling rate environment is certain to again shine the spotlight on them at regulatory examinations. As such, we thought it would be a good time to review a few key concepts and then go through the best practices to be sure you’re exam ready. So first, the key concepts: