Tag: Loan Hedge

How To Generate More Revenue and Satisfaction with an Inverted Yield Curve

a LOAN TACTIC TO IMPROVE REVENUE AT YOUR BANK
A LOAN TACTIC TO IMPROVE REVENUE

You cannot read a financial paper, business feed, or watch financial television without someone mentioning yield curve flattening and inversion. Google searches for “yield curve inversion” are at their highest level ever. What is all the fuss about, and why should bankers care? We will explain an innovative way that bankers are using the current yield curve to protect existing relationships, increase yield and generate non-interest income, and we will use a recent case study to highlight the specifics loan terms and results.

 

Background

 

Community Banks Are Less Able To Withstand A Flattening Curve

Swaps and Hedge To Help Net Interest Margins

For all banks, the flattening yield curve is impacting profitability. The difference between the Two-Year swap and the Ten-Year swap rate is around 12 basis points. For banks over $15B, this flattening moves net interest margin (NIM) lower and then improves past the one year mark. However, for community banks under $15B, the flat curve not only moves net interest margin down, but this lower profitability becomes worse over time.

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