Article and Webinar Series

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Avoiding the Pitfalls: Sound Investment Management for Community Banks
by Jeffrey F. Caughron
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 Community banks are wise to use the bond portfolio in the traditional manner: as an earning asset, a store of liquidity and safety, and a vehicle with which to manage interest rate risk. This is the essence of the “systems approach” or the “Baker Method” of investment portfolio management. The portfolio is not a ...
Look Before You Leap: Using Simulations In a Decision-Making Framework
by Lester F. Murray
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 Over the last several years, community bankers have become well aware of the regulatory emphasis on, and requirements of, interest rate risk (IRR) management. Throughout the current and persistent environment of ultra-low interest rates, regulatory mandates have expanded to include more stressful ...
Yield Curve Behavior: Flattening in the Face of the Fed
by Jeffrey F. Caughron
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 If you want to gauge market expectations and forecasts of future short-term interest rates, a good place to start is the yield curve. According to the “Expectations Hypothesis,” a long-time favorite of economists, the shape of the yield curve at a moment in time reflects investors’ forecasts of future ...
The Growing Burden of Underfunded Public Pensions
by Dana Sparkman
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 Connecticut’s governor recently proposed forcing local municipalities to assume part of the state’s pension liabilities for teachers, thereby reducing the state’s burden. This raises questions of what caused the need for this extreme proposal and if similar actions could follow ...
Gap Management: An Idea Whose Time Has Gone
by Lester F. Murray
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 Remember 8-track audio tapes? What about VCRs? Typewriters? These were all innovative products that, at the times they were introduced, were game-changers for many. But, the same technological drive to “find a better way” that created them also made them obsolete. Someone is always coming up with ...
Understanding the Tax Treatment of Discount Municipal Bonds
by Dana Sparkman
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 In a rising rate environment, bonds priced at a discount become more prevalent; therefore, it is imperative that municipal bond investors consider the tax implications of purchasing municipal bonds at a discount. Discounts that occur in the secondary market are known as “market discounts” and those that occur at issuance ...
Market Considerations - Trump’s Tax Plan
by Drew Simmons
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 In the wake of the election, to say anything with absolute certainty isn’t possible. Such is the case regarding the impact of Trump’s tax policies for the tax-free municipal sector. What we do know is that the Trump administration shouldn’t have much difficulty cutting taxes under the Republican controlled House and ...
Are Revenue Bonds Always More Risky Than General Obligation Bonds?
by Drew Simmons
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 In late August, the State of Illinois issued $573 million of sales-tax revenue bonds as part of their Build Illinois program. What might puzzle some investors in the muni market is that the bonds are rated AAA by S&P. That’s 7 levels higher than Illinois’ GO bond rating of BBB+, the lowest state credit in ...
Prepay Protection — There’s No Free Lunch
by Drew Simmons
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 Prepayments from September increased the most since the 2012 Refi Wave, the result of near lows in mortgage rates and a few more days in the day count for mortgage applications to close. As is typically the case as prepayments rise, demand for prepayment protection is on the rise. Investors in specified pools ...
A Declaration of Independence for IRR Review
by Lester F. Murray
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 There’s been some confusion (and perhaps misinformation) among many community bankers about the best way to achieve the appropriate degree of independence when reviews of interest rate risk systems and practices are performed. It has been the perception of many that to satisfy regulatory ...
Getting the Most Out of Your Asset/Liability Committee
by Edward A. Krei
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 As a result of increased examiner focus on interest rate risk, many financial institutions are reviewing and enhancing their asset/liability functions, models, and risk management processes. Unfortunately, the thrust of these efforts all too often stops with policy and regulatory compliance. If your ...
Asset/Liability Management: Modeling the Dynamics of Liquidity
by Jeffrey F. Caughron
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 Every banker knows that liquidity has a tendency to ebb and flow with changing market conditions. As a rule, liquidity rises and falls inversely with the general trend and direction of interest rates. The ability to reasonably project the behavior of balance sheet cash flows, and ...
Which States and Counties Are Most Exposed to the Oil and Gas Sector?
by Drew Simmons
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 West Texas Intermediate (WTI) crude oil recently reached $26.19 per barrel, a 12-year low and down 68% since 2014. When adjusted for inflation, it was the lowest since 1986. Municipal market participants are now left wondering: how will this impact states and counties with a ...
When Interest Rates Rise, Will Your Portfolio’s Yield Follow?
by Lester Murray
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 As time and circumstances move the domestic economy and its financial markets into an environment that most believe will be characterized by gradually rising interest rates, many portfolio managers find themselves wondering how best to manage that condition. Having a portfolio that ...
How the Cow Ate the Cabbage: Are Your Interest Rate Risk Reports Giving You the Unvarnished Truth?
by Lester Murray
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 As instructive idioms go, “hope for the best but prepare for the worst” is a good one. While recognizing the human tendency for optimistic expectations, it acknowledges the practical contingency that an undesirable outcome may occur. It also exhorts us to be ready ...
Back Testing and Validation of A/L Reporting Systems
by Jeffrey F. Caughron and Chris Wilson
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 For a number of years, bank regulators have focused on the adequacy and soundness of ALCO processes used by banks to manage interest rate risk exposures. With respect to the reporting system or model that is used for A/L analysis, there are certain key points ...
Municipal Bonds and Pension Liabilities: Reporting Changes Ahead
by Dana Sparkman
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 Municipal bonds are a key component of most bank investment portfolios. In recent years, credit risk and credit risk analysis for municipal issuers have become hot topics for bankers and regulators alike. Since 2009, concerns regarding the lack of transparency of ...
Strategic Modeling for High Performance: Asset/Liability Management
by Jeffrey F. Caughron
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 The successful performance of a community bank ultimately depends on proper understanding and management of interest rate risk. Sometimes, however, bank management is too complacent about modeling changes in interest rates and the resulting impact on earnings ...
Diversification of Bank Municipal Bond Holdings
by Dana Sparkman
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 Don’t be Afraid to Buy Out-of-State. In recent years the relative value of high-grade, bank-qualified municipal bonds has been excellent for taxable banks. However, portfolio managers have at times been constrained by a limited supply of good bonds ...
Speculation vs. Strategy: What Drives Your Investment Decisions?
by Lester Murray
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 There are always some portfolio managers who have convinced themselves, and perhaps others, that they can predict the timing and direction of changes in interest rates. For those lucky soothsayers, the management of their banks’ investment portfolios has been easy ...
Liquidity and Investment Management
by Jeffrey F. Caughron
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 A bank is a system of interrelated functions. No single part of the balance sheet should be analyzed in complete isolation as the output of one decision serves as the input for another. This idea is particularly applicable to questions of liquidity ...
How Much Portfolio Risk Is Too Much?
by Lester Murray
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 Everyone knows that if you want to make an omelet, you have to break a few eggs. And, if you want to manage a bond portfolio, you’re going to have to take a little risk. No risk, no reward. The thorny question for many portfolio managers, and boards of directors ...
(Webinar) - The Regulatory Focus on Interest Rate Risk
Wednesday, February 18, 2015
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 The Regulatory Focus on Interest Rate Risk: What to Expect and How to Comply
(Webinar) - Investment Strategies for 1st Quarter 2016
Thursday, January 14, 2016
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 Quarterly Investment Strategies Webinar
(Webinar) - Investment Strategies for 1st Quarter 2015
Thursday, January 15, 2015
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 Quarterly Investment Strategies Webinar
The Due Process of Interest Rate Risk Management
by Lester Murray
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 For those managers of interest rate risk (IRR) who think their job is done once they’ve generated reports that measure their banks’ risks to earnings and capital: well, think again. While thinking about this, it may be helpful to remember that having a reporting system whose ...
Conducting an Independent Review of ALCO Processes: Clarity from FDIC
by Jeffrey F. Caughron
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 Once again, regulators are emphasizing the importance of sound interest rate risk (IRR) management systems and processes. The winter 2014 issue of the FDIC’s Supervisory Insights publication is dedicated almost entirely to the subject. It contains articles ...
Yield Curve Changes and Management of the Investment Portfolio
by Jeffrey F. Caughron
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 Bank investment strategies must be developed within a framework that considers multiple dimensions of risk and reward. We begin with a “big picture” view of the bank and its balance sheet. The asset/liability posture, liquidity position, tax considerations, and expectations for loan demand and deposit growth ...
Systems for A/L Management: Evolution and Enhancement
by Jeffrey F. Caughron
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 Over the years, community banks have navigated through some fascinating and challenging times. In the seventies, Federal Reserve Chairman Paul Volker launched an unprecedented tight money campaign in order to fight double-digit inflation while the banking industry was coping with enormous change in the...
Don’t Look at Interest Rate Risk Through Rose-Colored Assumptions
by Lester Murray
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 Thanks to some specific and oft-repeated exhortations from various supervisory authorities, community bankers have learned over recent years just what risks are of the greatest concern to bank examiners. Whether one goes back to 2010’s FFIEC Advisory on Interest Rate Risk, or the more recent...
(Webinar) - Investment Strategies
Recorded Thursday, July 10, 2014
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 Investment Strategies for 3rd Quarter 2014
Mid-Year Thoughts on Interest Rates and the Bond Market
by Jeffrey F. Caughron
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 At the end of last year, conventional wisdom called for a steady increase in interest rates and bond yields as we moved through 2014. After all, the economy had shown clear signs of improvement, job creation seemed to be proceeding apace, and the Fed had begun the process...
Asset/Liability Management and Balance Sheet Dynamics
by Jeffrey F. Caughron
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 It is no surprise that community banks have seen their net interest margin fall in recent years. We know that funding cost hit bottom some time ago, while yields on earning assets continued to whittle lower. Older loans and bonds paid off or matured and were replaced by newer and much lower yielding assets.
Your Bond Portfolio Does Not Live Alone
by Lester Murray
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 Like a typical household, a typical community bank has a variety of diverse characters under its roof. It might be expected, then, that these diverse characters occupy their time with diverse activities. If a bank is to operate as a happy household...
Strategic Bond Swaps: Optimizing Risk and Reward in Investments
by Jeffrey F. Caughron
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 Prudent management of a community bank investment portfolio requires an approach that starts with strategic analysis of the balance sheet, and then moves to tactical decision-making. This sort of top-down method first requires a look at the bank’s asset/liability...
Another Heads Up: Banking Trends and Interest Rate Risk
by Jeffrey F. Caughron
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 In the past five years, banks have seen unmistakable trends toward stronger deposit growth, weaker loan demand, and larger investment portfolios. Over the same time period, we have had to operate in an unprecedented and sustained low interest rate environment...
Interest Rate Risk: A Priority for 2014
by Jeffrey F. Caughron
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 As we move into a new year, the US economy continues to plod along at a slow and steady pace. Things are getting better, but we're still far from where we were before the "Great Recession" began. Meanwhile, the banking landscape has improved...
(Webinar) - Investment Strategies
Recorded Thursday, January 9, 2014
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 Investment Strategies for 1st Quarter 2014
(Webinar) - Regulatory Update
Recorded Tuesday, December 17, 2013
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 Regulatory Update - Heightened Focus on Interest Rate Risk
Managing Sensitivity to Market Risk
by Jeffrey F. Caughron
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 Bank regulators have again made clear their intention to highlight interest rate risk management as a point of focus. The FDIC issued a new Financial Institution Letter (FIL) on October 8 entitled “Managing Sensitivity to Market Risk in a Challenging Rate...
Modeling the Rate Sensitivity of Non-Maturity Deposits (NMD)
by Jeffrey F. Caughron
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 In order to properly measure interest rate risk, we must be able to make reasonable assumptions about uncertain balance sheet characteristics. One of the most difficult and critical of these assumptions is the behavior of non-maturity or “core” deposits in terms of their interest rate...
Bond Yields and Fed Policy: Food for Thought
by Jeffrey F. Caughron
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 The US economy remains solidly sluggish as we enter the second half of 2013. Most analysts look for a less-than-stellar 2.0% pace of US growth for the entire year. This doesn’t compare favorably with the 2.2% we saw last year...
FDIC on Municipal Credit Risk Assessment
by Dana Walker
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 The FDIC’s recent “Supervisory Insights” publication provides clarification of section 939A of the Dodd-Frank Act. This section of Dodd-Frank states that banks should not rely on external credit ratings, and should instead perform their own due diligence and credit analysis in order to determine...
Stress Testing Non-Maturity Deposits
by Jeffrey F. Caughron
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 A notable trend in bank balance sheets over the past few years has been the steady growth of non-maturity deposits, or NMD. Much of this growth has been a result of greater risk-aversion on the part of depositors who now view liquidity and protection of principal as key considerations...
Do Surging Deposits Mean Surging Risks?
by Lester Murray
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 We’ve all been warned about the negative consequences of having “too much of a good thing.” Too much of a good thing, it’s been said, can sometimes be a bad thing. We tell our children that too much candy will give them a stomachache...
New Regulations for Municipals 2013:
Dodd-Frank 939 A

by Drew Simmons
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 Effective January 1, 2013 bank regulators will be implementing new standards for municipal investments. The biggest take away is clear: Credit ratings will no longer serve as sole justification for credit quality...
Bond Portfolio Strategies for 2013
by Jeffrey F. Caughron
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 As we transition into a new year, bank investment officers should take time to assess the big picture and think about strategic direction for the bond portfolio. A glance in the rear view mirror is instructive. We know that 2012 was punctuated by a great deal of politics and a continuation of sloth-like economic growth...
Rust Never Sleeps… and Neither
Does Interest Rate Risk

by Lester Murray
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 Now that Federal Reserve Chairman Ben Bernanke has made it clear that he has no intention of raising interest rates prior to the latter part of 2015, this must mean that community banks can probably forget about interest rate risk for a while. Right? Well, not exactly. Unfortunately, interest rate risk (IRR) isn’t present at only...
The Municipal Bond Market: An Update on
Credit Concerns

by Drew Simmons
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 There’s no getting around it; the most frustrating theme in 2012 for financial institutions has been margin compression. Balance sheets have been altered by weak loan demand and steady deposit growth, resulting in pressure on the investment portfolio to produce earnings. Conservative portfolio managers have struggled to find relative value...
Proposed Basel III Capital Requirements
by the Financial Strategies Group
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 Bank regulatory agencies recently released their proposals for the implementation of new capital standards that would meet the requirements of the Basel III international guidelines. One of the provisions of Basel III would...
Getting the Most Out of Your
Asset/Liability Committee

by Edward A. Krei
(view)    (file download)
 
 As a result of increased examiner focus on interest rate risk, many financial institutions are reviewing and enhancing their asset/liability functions, models, and risk management processes. Unfortunately, the thrust of these efforts all too often stops with policy and regulatory compliance. If your measures of interest rate risk…
Investment Management:
Rules for Risk and Reward

by Jeffrey F. Caughron
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 Community bank managers find themselves struggling to retool and readjust their strategies in order to cope with an unprecedented economic environment, changed balance sheet mix, and increased regulatory burden...
Interest Rate Risk: Assumption Junction
by Matt Harris
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 If you’ve ever owned a car, you probably know about maintenance schedules. When followed, items such as oil, spark plugs and tires are periodically reviewed and replaced to ensure the vehicle will continue to run...
Don’t Step in a Hole
by Lester Murray
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 Time sure flies when you’re having fun, and that’s probably why it doesn’t seem like it’s been over three years now that the Fed Funds rate has been next-to-nothing. Sure enough, it was the December 2008 meeting of the Federal...
Interest Rate Risk Redux:
Clarifications from the FFIEC

by Jeffrey F. Caughron
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 On January 12, 2012, the Federal Financial Institutions Examination Council (FFIEC) issued responses to Frequently Asked Questions (FAQs) about the 2010 Advisory on Interest Rate Risk Management.
Bank Investment Management:
Embracing New Realities

by Jeffrey F. Caughron
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 As we transition into 2012, community bankers find themselves adapting to new realities and changed conditions in their industry. Bank performance is being challenged by increased regulatory burden, asset quality issues, weak loan demand, and excess liquidity...
Asset/Liability Management:
Four Thoughts for the Current Environment

by Jeffrey F. Caughron
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 Community banks continue to face significant headwinds and challenges to performance. Regulatory issues, weak loan growth, and an uncertain rate outlook are weighing heavily on margins and returns. As bank managers’ struggle...
A Top-Down Approach to Investment Management
by Jeffrey F. Caughron
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 Thirty years ago, Dr. James V. Baker wrote about “Systems Theory Development” in his original work on Asset/Liability Management. He illuminated the idea that a bank is a system of complex relationships that cannot be analyzed...
All Step-Ups Are Not Created Equal
by Jeffrey F. Caughron
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 One of the most common types of bonds that community bankers see from brokers these days is the so-called “step-up” bond. These are callable bonds that contain a feature where the coupon rate rises by a pre- determined amount if the issuer decides...
Managing Cash Flows in the Investment Portfolio: Smoothing out Risk and Reward
by Jeffrey F. Caughron
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 Prudent management of a bank’s investment portfolio requires a clear understanding of the dynamics of cash flows. If you avoid credit risk and focus only on high-grade securities, you can concentrate on the management of those cash flows...

All Liquidity is not Created Equal
by Lester Murray
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The management of liquidity is a major component with the potential to beneficially mitigate or detrimentally exacerbate the risks to earnings and capital that banks face every day.

Interest Rate Risk: Modeling Dynamic Cash Flows
by Jeffrey F. Caughron
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The ability to reasonably project the behavior of balance sheet cash flows, and therefore liquidity, is critical to sound asset/liability management processes.

Interest Rate Risk: A Regulatory Priority For 2010
by Jeffrey F. Caughron
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The article contains information which helps clarify what is expected by examiners, and is an important development with key implications about adequacy of modeling and control processes for interest rate risk management.

Transitions and New Priorities: A 2010 Outlook
by Jeffrey F. Caughron
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As we begin the New Year, bank managers confront a new phase in the economic cycle as well as likely shifts in Fed policy and regulatory priorities.

Estimating the Rate Sensitivity of Core Deposits
by Jeffrey F. Caughron
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One of the most difficult and critical tasks for a financial analyst is the manner in which rate sensitivity is determined for non-maturity or “core” deposits.

Asset/Liability Management: Understanding Economic Value of Equity (EVE)
by Jeffrey F. Caughron
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Asset/Liability Management can be thought of as the coordinated process of defining, measuring, and managing the financial risks faced by banks.

A “Total Bank” Framework for Investment Management
by Jeffrey F. Caughron
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The economic cost of locking up the balance sheet and precious capital on illiquid assets can easily outweigh whatever interest and cash flow is being received.

The Baker Group and Texas Community Banks: 30-years and Going Strong
by Jeffrey F. Caughron
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For nearly a third of a century, the Baker Group has been a partner with community banks in Texas as they’ve navigated through some fascinating and often challenging times.

Back Testing vs. Validation: What is the Difference
by Jeffrey F. Caughron & Chris S. Wilson
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Back Testing and Validation, though entirely different processes, are equally important to the overall integrity of any modeling process and its reports.

Managing Cash Flow Volatility in the Balance Sheet
by Jeffrey F. Caughron
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The magnitude of cash flow volatility can result in undesirable levels of liquidity risk and financial performance in general.

Fiscal and Monetary Policy
by Jeffrey F. Caughron
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The interest rate climate in 2009 is being shaped by government policy to a greater extent than has been the case for decades.

The American Recovery and Reinvestment
Act of 2009

by J. Andrew Simmons
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The American Recovery and Reinvestment Act of 2009 was officially passed by the U.S. Congress and signed into law by President Barack Obama on February 17th, 2009.

MBS: Recent Developments & Thoughts on Strategy
by Jeffrey F. Caughron & Phil Stenseth
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The housing plan announced Wednesday has raised numerous questions about prepayment impacts and relative value in the market for agency mortgage-backed securities.

Fannie Mae and Freddie Mac: Thoughts on Credit and Safety
by Jeffrey F. Caughron
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In our opinion, the actions to date on the part of the Treasury and Federal Reserve have clearly exhibited strong and continuing government support of the GSEs and the implied guarantee.

Bank Investment Management: A Focus on Liquidity
by Jeffrey F. Caughron
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Through the years, community banks have used the investment portfolio as a store of liquidity and safety and as a flexible earning asset.

Credit Analysis for Bank Qualified Municipal Bonds
by J. Andrew Simmons
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Community banks have traditionally relied on municipal bonds as a key component of the investment portfolio. Generally, US banks in the $50 - $500mm asset class maintain...

Tools for Managing Liquidity Risk
by Jeffrey F. Caughron
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The regulatory emphasis on liquidity has been building for some time, but has now taken on greater importance in the wake of the recent turmoil in financial markets generally and credit markets specifically.

Thoughts on the Global Financial Meltdown
by Jeffrey F. Caughron
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The events of the last thirty days have been sudden, violent, and devastating to the financial economy. We are now faced with the long-term consequences of excess risk, lack of transparency, and inadequate regulation of certain key markets.

Implications of GSE Rescue Plan
by Financial Strategies Group
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U.S. Treasury Secretary Henry Paulson announced the takeover of Fannie Mae and Freddie Mac on Sunday. This is a historic event for a variety of reasons. The companies comprise almost one-half of the U.S. market...

The Dollar, Inflation, and Fed Policy
by Jeffrey F. Caughron
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Among the many sources of Ben Bernanke’s headaches these days, we can be sure that the exchange value of the dollar is near the top of the list.

Interest Rate Risk Monitor (IRRM) - Release 4.0
by The Baker Group Software Solutions, Inc.
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The Baker Group Software Solutions, Inc. is pleased to announce the upcoming release of the Interest Rate Risk Monitor: IRRM® 4.0 effective for June 30 reporting.

Strategic Modeling for High Performance: Asset/Liability Management
by Jeffrey F. Caughron
(view)    (file download)

 

The successful performance of a community bank ultimately depends on proper understanding and management of interest rate risk.

Retooling the Fed and Reassuring the Markets
by Jeffrey F. Caughron
(view)    (file download)

 

It’s now clear that the turmoil in financial markets has exposed critical failings in the oversight of new forms of lending, borrowing, and investing activities in recent years.

Prepare for a Year of Adjustments:
Thoughts on 2008

by Jeffrey F. Caughron
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In the years ahead, we will probably look back on 2007 as a critical juncture and historic moment for the world economy because of the damage done by the sub-prime fiasco.

Sound Investment Management for
Community Banks

by Jeffrey F. Caughron
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The sub-prime mortgage fiasco continues to ripple through the economy and wreak havoc in the credit markets.

Opportunity Amidst the Turmoil
by Jeffrey F. Caughron
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Clearly, this summer’s market crisis began with a housing market bubble which reached its peak sometime during last year.

Performance Risk in the Investment Portfolio
by Jeffrey F. Caughron
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Investment portfolio management for community banks can be thought of as the management of three variables: yield, cash flow, and market value or price sensitivity.

Fed Policy and the Great Moderation
by Jeffrey F. Caughron
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The late economist, John Kenneth Galbraith, wrote that “there is much of the past that is in the present, so also there is much of the present that will be in the future, including a little that is yet to be evident.”

Making Sense of FASB Statement 159
by Jeffrey F. Caughron
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FASB Statement 159, “The Fair Value Option for Financial Assets and Financial Liabilities” is a move by FASB toward the ultimate goal of reporting all financial instruments at fair value.

Economic Trends and Investment Strategies for 2007
by Jeffrey F. Caughron
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The U.S. economy remains on a downward growth trajectory in early 2007, though it’s too early to know if we’ll see anything worse than a soft landing.

How Safe Are Agency Mortgage-Backed Securities?
by Jeffrey F. Caughron
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According to the Mortgage Banker’s Association, sub-prime borrowers fell behind on their mortgages during the fourth quarter at the highest rate in four years, and foreclosures begun on all types of home loans rose to a record.

Simulation Analysis for A/L Management: The Average Community Bank
by Jeffrey F. Caughron
(view)    (file download)

 

Bank managers must be aware that everything they do today with respect to pricing loans and liabilities or choosing securities for purchase is going to have an impact on the income statement at some point in the future.

Strategic Bond Swaps
by Jeffrey F. Caughron
(view)    (file download)

 

Prudent management of a community bank investment portfolio requires an approach that starts with strategic analysis of the balance sheet, and then moves to tactical decision-making.

Premium versus Discount MBS: A Thought for 2007
by Jeffrey F. Caughron
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The impact that a strong bond market has on MBS spreads is determined by several factors.

Interest Rate Swaps
by Jeffrey F. Caughron
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Interest rate swaps can be confusing to even the most experienced investor. This article takes a no-nonsense approach to break this concept down into its basic elements.

Internal Yield Curves: Visualizing Net Interest Margin
by Jeffrey F. Caughron & Steve Porter
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During the almost 30 years The Baker Group has helped community banks manage their interest rate risk and investment portfolios, we have noticed that one of the shortcomings of many asset/liability management models is...

The Effect of Market Sentiment and Expectations on Fed Policy
by Jeffrey F. Caughron
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William Shakespeare wrote that “nothing’s either good nor bad, but thinking makes it so.” Hamlet’s observation might well be applied to the Federal Reserve’s policy decisions insofar as they...

Repurchase Agreement Program
by Financial Strategies Group
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The Baker Group LP in partnership with South Street Securities LLC now provides Repo and Reverse Repo services.

If The Fed is Finished Tightening, Where Do We Go From Here?
by Jeffrey F. Caughron & Chris S. Wilson
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The Fed has apparently marked the end of their two-year tightening campaign and bank Investment Officers are now left to ponder their next step. The tone from the Fed’s August 8 statement was...

Measuring Risk in Callable Bonds
by Jeffrey F. Caughron
(view)    (file download)

 

A Primer On Option-Adjusted Spread.

Issuing Trust Preferred Securities
by The Baker Group LP
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Why Issue Trust Preferreds? (1)Tier 1 Capital Treatment from the Federal Reserve Board (2)Tax-Deductible Periodic Payments (3) Non-Dilutive (4)...

Risk Tolerance and Break-Even Yield Analysis
by Jeffrey F. Caughron
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Asset/Liability Management involves the analysis of bank balance sheet data so that exposures to interest rate risk may be defined and managed. State of the art methods and techniques of A/L management easily allow us to...

Relative Value Analysis for Investments
by Jeffrey F. Caughron
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Community bank investment officers are given the responsibility of deciding how to manage the bank’s excess liquidity. In order to insure that this responsibility is carried out properly, there needs to be a logical decision-making process.

Managing Cash Flows in the Investment Portfolio
by Jeffrey F. Caughron
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Investment portfolio management for community banks can be thought of as simply the management of cash flows. On any given day, the portfolio may receive cash flow from interest payments, matured bonds,...

The Continuing Yield Curve “Conundrum”
by Jeffrey F. Caughron
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Fed Chairman Alan Greenspan again referred to the “unusual behavior” of the yield curve in a speech to the International Monetary Conference in Beijing last night. He noted...

Measuring Price Risk in the Investment Portfolio
by Jeffrey F. Caughron
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Measuring Price Risk in the Investment Portfolio: A Simple Explanation of Duration and Convexity.

Internal Yield Curves of Community Banks
by Jeffrey F. Caughron
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One of the shortcomings of many Asset/Liability Management models is the simplistic assumption that interest rates all move together in parallel fashion. Many “rate shock” simulations are at times both inadequate and...

Relative Value Strategy
by Jeffrey F. Caughron
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Why Are Spreads So Tight? Almost every type of fixed-income product that financial institutions purchase has experienced a decline in yield spreads over the last five years. This is partly due to increased relative yields on Treasuries caused by...

Two Simple Rules for Investment Management
by Jeffrey F. Caughron
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For every investment decision or choice, we must define the risk/reward tradeoff, then measure it accurately and manage it prudently.

Options Risk in the Investment Portfolio
by Jeffrey F. Caughron
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In an effort to increase portfolio returns, investors routinely take on options risk in the securities that they buy. Proper analysis of these securities can provide increased returns within acceptable risk parameters.

Yield Curve Changes and Management of the Investment Portfolio
by Jeffrey F. Caughron
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The successful performance of any financial institution depends critically on how it manages the interest rate dynamics of its balance sheet.

Confessions of a 25-year old
by Steve Porter
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James Baker & Associates celebrated its 25th Anniversary this past year. And, suddenly, we’re feeling a bit like the owner of a new car who begins to notice how many other folks are driving the same vehicle.

Trust Preferred Securities: An Option for Community Banks
by The Baker Group
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Growing a business in any industry requires capital formation. And community banks wishing to raise capital will want to consider participating in the issuance of pooled Trust Preferred Securities...

What are your Bank’s “Impact Areas”?
by Edward A. Krei
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Since 1979, The Baker Group has provided interest rate risk and investment portfolio management assistance to community banks nationwide. In addition, one of the key services provided to community banks...