Hedging in a Dynamic Market Environment

• Jul 9, 2019
• By Brittany Rollek & Rachel Acers

Domestic economic expansion is steady, and short-term interest rates have increased 2% in three years’ time. Loan growth runs hot and earning assets are repricing to higher market rates causing gross income to increase at a notable clip. At the same time, deposit growth is less robust causing loan-to-deposit ratios to gradually climb. Funding mix is responsive to the new higher market rate environment as well, steadily shifting from core non-maturity funds to higher-cost term deposits and growing reliance on wholesale funding. This ever-changing and challenging business environment is very much a reality for most depository institutions in 2019. Although financial institutions have largely seen an increase in net interest margins during the FOMC’s tightening activities, market concern has...

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