Correspondent Blog

We have been writing on the various strategies available to community banks when structuring commercial loans in this current challenging business and credit environment. With the flat and low yield curve, we have discussed how banks may offer commercial loans through the ARC hedge program using two different strategies: 1) embedded floors, and 2) forward…

Go to any Trader Joe’s market and then go to a competing market, and you will be likely to find a significant difference. Trader Joe’s has produced a COVID-19 response that is thoughtful, practical, relatively inexpensive, and caring. From their increased staffing to their small gestures like a preferred senior’s line, the handing out of…

Last week we took a look at why and how bankers must triage their credit portfolio first before taking action. We also looked at some initial restructuring steps banks can take in a related article. In today’s article, we model a $1B commercial loan portfolio and look at what could happen to probabilities of defaults,…

The impact of coronavirus on community banks will be widespread, and, with some borrowers, the restructuring efforts may take a long time and will sap substantial bank resources. Even as bankers are exerting time and effort to help some borrowers stay in business and continue to service their bank debt, other borrowers are looking for…

How To Create A High Performing Bank With An Employee Handbook Let’s be honest. Your bank employee handbook is probably a snooze-fest. If you are like most banks, your employee handbook was likely cobbled together from a template given to you by a third-party human resources firm or a revision of another bank’s handbook. Chances…

The economic implications of coronavirus are expected to be widespread and are already causing some borrowers to be concerned about their ability to make loan payments. Many of our bank customers have used the ARC program to fix rates for borrowers while retaining a variable rate. Some of these borrowers in profoundly affected sectors, such…

The Fed did more than cut rates on Sunday; they pumped a massive amount of liquidity in the system, sending a signal to banks to level up. Far behind the health of employees and customers in the COVID-19 pandemic, comes the economic impact. Unlike the recession of 2008, where the economic impact came over many…

There is now little doubt that the coronavirus will spread globally and will cause more supply and demand shocks in the market. While economic activity will slow, the amount and duration of the slowdown are big unknowns. Community banks may not have exposure to Chinese markets and may not have significant exposure to the energy…

When we talk about unforeseen Black Swan events, the COVID-19 virus fits the profile. It has come out of nowhere, taken lives, disrupted public health, altered our daily lives, causing financial market volatility, caused more than five standard deviations of movement in interest rates and likely to have a material impact on credit markets. This…

Here is the funny thing about the tongue-brain connection – your brain can project, with a very high degree of certainty, what it will feel like if you lick any given object such as your desk, your shirt, car hood, a stucco wall, computer keyboard – you name it. This is despite the fact that…

There has been substantial research on how prepayment speeds of residential mortgages affect the profitability of individual loans and portfolios.  Because of the homogenous nature of residential mortgages, many firms have developed highly predictive models to calculate prepayment speeds based on past behavior, portfolio makeup, and macroeconomic variables.  However, very little research is available on…

We have written numerous blogs about why banks should reconsider the risk-for-yield business model when it comes to credit or interest rate risk. The return on equity (ROE) in risk-for-yield businesses is low, and the business outcomes during downturns are adverse.  Instead, banks should construct an advisory business where taking risk may be just one…