For #CommunityBankers who are curious
"In the 1981 film, "Raiders of the Lost Ark", one particular scene consistently brings the house down: Indiana Jones, having survived an elaborate chase through a casbah, is confronted by a swordsman whipping through a flashy routine with a scimitar. Indy initially squares off against the deadly swordsman bearing only his trademark whip in his hands; then with a look of infinite fatigue and disgust, he casually pulls out his revolver and blows the bad guy away." (Credit for text: Snopes.com)
I’ll be honest, I was never a Twitter fan. I always thought, “I don’t have the time to sit on Twitter all day and read every single thing someone has to say in under 140 characters.”But then…I became a believer.
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.
"Life is really simple, but we insist on making it complicated." - Confucius
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.
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.
Seems backwards to me. As George Bush (the older one) said, "The past is over". The future is unlimited. We can do nothing to change what has happened, but we can do anything to change the future.
Gap, beta-adjusted gap, duration and even basic budgeting models only frustrate, confuse and even mislead the financial institution’s asset liability management committee (ALCO). Detailed gap analysis, fiddling with the distribution of savings balances and even calculating the duration of equity does not lead to better margins, nor do they mitigate rate risk.
Happy one year anniversary to Sparks from the Anvil! There has been a great response to the blog, thanks to all of you.