The Perils of Fixed-Rate Lending - Don't Repeat the Mistakes of Years Past In today’s uncertain rate environment, offering fixed-rate loans to commercial customers might seem like a win-win scenario: your customer gets a product they are familiar with, and the bank is protected when rates decline. 📉 What’s the risk? • Margins get squeezed when interest rates rise. • Deposit competition drives up funding costs. • Balance sheets become more vulnerable to market shifts. 🔍 What’s the solution? Sahil Pankhaniya and Frank Fiorilli from Derivative Path break down the challenges and offer insights on how banks can navigate these risks effectively. Read their latest analysis: https://hubs.la/Q03bqnfV0 💬 Let’s discuss: How is your institution adapting to shifting rate dynamics? Are you actively hedging your loan portfolio? Drop your thoughts in the comments! #FixedRateLending #InterestRates #RiskManagement #BankingStrategy #Hedging #BalanceSheetManagement #DerivativePath Derivative Path
SVP | Director - Investment Accounting & Reporting - Derivatives, Hedging, Complex Products, Equity, & Fixed Income
1wDon’t believe many banks do this directly in a loan, Derivative Path. Banks will offer floating rate loans and then offer clients the ability to switch to fixed by attaching a swap. That way as a bank, you’re risk neutral (the swap is paired with a back to back that exits the notional to zero)..except for credit risk which the bank retains.