Today’s rising interest rates provide new challenges for banks and credit unions
It is easy to generalize what rising interest rates mean to a financial institution’s risk management plan, but the current rising rate environment is somewhat different and has a few unique features that may alter risk management decisions for banks and credit unions.
That’s the assessment of Chris Mills, Managing Director-Analytics at MountainView Financial Solutions, a Situs company, and Director of Analytics Della Zheng.
In MountainView’s recent webinar “Liquidity Risk and Your Deposits in a Rising Rate Environment,” which is now viewable on-demand, Mills and Zheng outlined some of the key reasons institutions need to take a more strategic approach to deposit management and look closely at how interest rates uniquely impact an institution’s behavior.
According to Mills and Zheng, the current situation does not mirror past rising rate environments. In the webinar, the two presenters offer a range of data points, graphs and macro trends to showcase the key differences in the current rate environment and discuss the implications for banks and credit unions. A few areas highlighted include:
To access the details and better understand how this rising interest rate environment may alter your depositor’s behavior and an institution’s risk management plan, watch the on-demand webinar.
Proposed eleventh-hour change to CECL has bankers scrambling
Bankers prepping for a new accounting standard for loan losses have been thrown a curveball.
The Financial Accounting Standards Board (FASB) has signaled support for an amendment that would require financial institutions to break charge-offs and recoveries out by vintage year. The late-hour change to the standard for Current Expected Credit Losses (CECL) received enthusiastic backing from investors and analysts because it will provide more insight into credit trends.
The response from bankers has been more subdued.
Banks tend to report charge-offs and recoveries in aggregate terms, so accounting for them on a year-by-year basis could require new systems, Daniel Palomaki, a managing director for accounting policy and controller of the Institutional Clients Group at Citigroup, said at a Nov. 1 meeting of a group FASB formed to discuss CECL implementation.
Read more: American Banker
Fed to further overhaul stress testing, make it easier for banks to pass
Federal Reserve Vice Chairman of Supervision Randal Quarles in a speech last Friday said the agency was considering revisions that could make the test scenarios more consistent from year to year and give firms their results before they wrap up shareholder-return plans. Big banks must pass the Federal Reserve’s stress tests to be able to make shareholder payouts, although the timing of the test results means banks set those plans before knowing how they performed.
“It is prudent to review all our practices,” Mr. Quarles said in prepared remarks for a speech in Washington, “in light of changes in the industry that have been achieved.”
The changes under consideration “are not intended to alter materially the overall level of capital in the system,” he said. Some of the revisions are expected “in the not-too distant future,” he added.
Banks will likely welcome what Mr. Quarles outlined as a sweetening of an April proposal that was already set to ease the stress-testing burden.
“We believe this should permit mega banks to boost distribution levels while reducing the risk of an unexpected” stress-test result, Cowen & Co. analyst Jaret Seiberg said in a note to clients.
Read more: Wall Street Journal
Almost half of big US banks don’t meet expectations of Fed supervisors
More than 40 percent of major U.S. lenders are failing to satisfy the Federal Reserve’s expectations in key areas of risk management, the central bank said last Friday in a report that reveals the regulator’s overall assessment of the industry.
The Federal Reserve’s inaugural Supervision and Regulation Report highlights a number of positives – including high capital and liquidity reserves – but it also shows how risks may now come from mismanagement, cyber attacks and failures to protect the banking system. Those faults are contributing to so many firms failing to make the top two of the five categories – “strong” or “satisfactory” – that measure a bank’s strength.
“While most firms have improved in key areas of supervisory focus, such as capital planning and liquidity management, some firms continue to work to meet supervisory expectations in certain risk-management areas,” the Fed said. The bottom three categories are “fair,” “marginal” and “unsatisfactory,” with the lower two rungs signaling major, immediate problems or even pending collapse.
Read more: Bloomberg
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