ARC – Executives

Our data and analysis strongly suggest that banks that can measure instrument and relationship level performance for ROA and ROE can improve simply by reallocating capital and resources to more profitable relationships and improve performance by strategic cross-selling. We measured how commercial loan hedging, where interest rate risk is removed, credit margin is properly determined...

Community banks are starting to embrace loan hedging as an effective tool for risk management, loan production, and fee income generation in commercial lending. These banks have concluded that using interest rate hedges on commercial loans has several benefits to the bank that include interest rate risk mitigation, credit enhancement, pricing discipline, increased borrower retention...

We compared community bank profitability on hedged commercial loans to those same banks’ reported return. The goal of our analysis was to investigate if community banks can improve their performance by utilizing a hedging program.  We want to caution readers that our analysis may not extend to all banks, borrowers, or regions, but the results...