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Managing Interest Rate Risk in the Current Rate Environment
Monday, March 22, 2010
UBA Offices
Cost: $275 members; $550 non-members
Register by Monday, March 8, 2010
Full fee is payable for cancellations after the deadline, however a substitute may attend. No shows will be billed the full fee.
LUNCH WILL BE ON YOUR OWN
The U.S. is experiencing the lowest interest rate environment in decades. The Fed funds rate was lowered to 25 basis points in December 2008 and has remained at this level for fourteen months. The average Fed funds rate over the last two decades was 3.30%; therefore the current level of this important metric is 300 basis points below the average. Of prime concern to bankers is not only the level of interest rates, but the volatility of rates. Look at recent history: The Fed funds rate was 6.50% on January 1st 2001 and declined 550 basis points over the next two years; the Fed funds rate was 1% in June 2004 and increased 425 basis points by June 2006; and more recently, the Fed funds rate was 5.25% in September 2007 and was lowered 500 basis points over the next fifteen months to 25 basis points, the current level. It would appear volatility is the rule not the exception.
Interest rate risk, in the banking industry, results from changing levels of the yield curve. We are currently at a very important juncture for risk managers because sooner or later market interest rates will increase, and given recent volatility the increase could be substantial. The question for your asset/liability management committee (ALCO) is – Are you ready for a potentially substantial increase in the yield curve? Will the increase in market interest rates benefit your bank or be a threat? How much confidence do you have in your modeling of interest rates? What can we do at this juncture to reduce our exposure to rising interest rates?
This seminar will attempt to answer these questions and others that may arise from individual participants. The program will explore both the timing of a rate increase and the potential level of the change in the yield curve. The program will also examine interest rate risk modeling and in particular, the assumptions built into your model. Finally the program will address options for both asset and liability sensitive banks, including off-balance sheet solutions.
Who should attend:
· CEO, CFO, controllers
· Manager with responsibility for the ALCO function
· Internal auditors
· This program would also be valuable to board members who sit on the ALCO or would like to become more familiar with the process.
Seminar Agenda
· Volatility of Market Interest Rates
· Current Forecasts for Short-term and Long-term Interest Rates
· Industry Exposure to Interest Rates Risk – Recent Evidence
· Regulators Recent Pronouncements on Interest Rate Risk
· Interest Rate Risk and the Impact on Bank Financial Statements
· Measuring Interest Rate Risk Exposure – Basic Techniques
· Modeling Assumptions – The Devil is in the Details
· Have you Back Tested Your Model?
· Options for Asset Sensitive Banks
· Options for Liability Sensitive Banks
· Off Balance Sheet Solutions - Hedging
Facilitator: Jim Clarke, Ph.D., Clarke Consulting Villanova, Pennsylvania
Jim has spoken across the country on asset/liability management and interest rate risk management. Dr. Clarke conducts seminars and webcasts for the Risk Management Association (RMA) and the Financial Managers Society (FMS) on interest rate and liquidity risk. Jim has taught interest rate risk topics at a number of state and national banking schools for thirty years. Jim has also conducted programs on hedging market risk for America’s Community Bankers (ACB). Dr. Clarke has written numerous articles for trade associations on interest rate risk management. Jim has a PH.D. in economics and was a member of the finance faculty of Villanova University for eighteen years.
Driving Directions & Parking
Parking is validated in the Walker Center
Coming from I-15 South take the 600 South Exit and coming from I-15 North take the 4th South Exit and proceed east to State Street. Turn left on State and left again on 200 South heading west. At the crosswalk between State Street and Main Street, turn right onto Regent Street and immediately left into the Walker Center Parking Garage. Unreserved parking is available above level 5. Take the parking garage elevators to the 7th floor for access to the 6th floor of the Walker Center. Once you are in the Walker Center Building, take the elevators to the 14th floor to Suite 1420. You may also take TRAX and get off on the Gallivan Center Station. The Walker Center is on the North East corner of 200 South and Main Street.
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