October 2019

Here Is The Latest Thinking For Libor Fallback Language

Libor To SOFR transition

Today LIBOR is linked to over $250 Trillion (that is with a “T”) in financial instruments and has been used as a reference rate for more than 30 years.  However, regulators, for various reasons, are driving a shift to an alternative reference rate.  In 2017, ARRC (Alternative Reference Rate Committee) identified the alternative reference rate in the US as SOFR (Secured Overnight Financing Rate).  Most community banks use LIBOR sparingly in their loan and deposit contracts.  However, if a community bank has even one LIBOR contract, the issue of fallback language becomes essential.

Why Your Bank’s Strategic Time Horizon May Hurt You

STRATEGIC PLANNING AND INNOVATION
Strategic Planning and Innovation

If you look at the sensitivity in a bank’s budget, $1 of investment in a new line of business usually doesn’t break even for two to three years. $1 invested in finding a new customer usually returns about 9%, while $1 invested in a new product is usually above 20%. This all compares to about a 40%+ return invested in improving processes (loan, branch, cash management, etc.) and about an 80% plus return spent on reducing customer churn, increasing lifetime value and/or helping cross-sell.