Interest Rate Risk and Community Bank Survival are Hot Topics at NYBA Conference
Jun 17, 2014Tweet
Note: As of January 1, 2016, Guardian was rebranded as Sortis Capital. Prior articles refer to the firm under its former name.
The Guardian team recently attended the New York Banker’s Association’s Senior Management Banker’s Conference, contributing to the networking and collaborative environment at the conference. The conference offered a range of leading New York banking industry speakers, including former Currency Comptroller of Northeastern New York Senior Advisor Mike Finn, and Eric Holmquist of Accume Partners’ Enterprise Risk Management. A dominant topic at the conference was the potential danger faced by many local banks by dramatically rising interest rates, and the community bank loan sales solution. Speakers at the Conference called rate risk a ticking time bomb, saying “2014 will be the year of decision making for banks …. Duration, duration, duration” was the message for these community banks.
Attending the conference was Guardian Director Scott Carragher, who noted, “With roughly 7,000 community banks now in existence, those that have loan to asset ratios above 60% will find it hard to survive and make a profit. A few of the speakers estimated that in the next two years, the number of community banks could be down to 5,000 if GDP stays flat but interest rates climb with core funding costs.”
Adding to such new costs is the fact that banks are now being pressured to act as enforcers for state and federal regulatory agencies. This will eventually make compliance costs the largest overhead factor for banks. Speakers cited the Federal Home Loan Bank of New York, which spent $28mm last year on compliance alone.
Additional pressure is also being added to banks’ lending prices, as one speaker noted that many banks are trying to offer 10 year CRE terms when 7 should realistically be their maximum. Long lending terms on low-rate mortgages also means far less pre-payments, which only exacerbates the issue of lending capital.
Summing up the conference, Carragher noted, “With the Fed holding out on raising interest rates until more signs of economic improvement, maximizing the value of existing loan portfolio and working towards better organizational efficiency are keys to the survival of many of these banks.” Guardian’s banking advisory services offer a broad range of solutions to help banks deal with many of these issues, with experts in community bank loan sales, strategic advisory and real estate capital.
See more upcoming NYBA Conferences here.
Read about Guardian’s strategic advisory services here.