Rate Risk is a Big Risk—Play Smart [VIDEO]

Boards want certainty. Markets refuse to give it.

That tension is where many community banks make their biggest strategic mistake—building plans based on interest rate assumptions that no one can actually predict. Wars, inflation, policy shifts, and government spending can change everything overnight. And when those assumptions collapse, so does margin stability.

In this week’s Grow Your Bank EZine, Roxanne Emmerich delivers a blunt reminder: rate risk is one of the biggest risks on your balance sheet—and guessing is not a strategy.

Instead of trying to outsmart the economy, top-performing banks focus on removing rate dependency from their strategy altogether.

Here’s what smart banks do differently:

• Hedge their bets instead of locking into long-term positions they can’t unwind

• Price loans for premium yield without overextending duration risk

• Relentlessly grow low-cost and non-interest-bearing deposits to protect margin

When you manage your bank so it performs regardless of where rates go, uncertainty loses its power. That’s how you answer your board with confidence—and sleep better at night.

If your strategic plan depends on a crystal ball, it’s time for a reset.

Watch the video to discover how to neutralize rate risk and play smart—no predictions required.

Watch now. 

Are interest rates going up, or are they going down?

For the short term or the long term?

What? You don’t know? You don’t know for sure? Well, that’s great. That means you are thinking—because nobody knows for sure.

And yet, there are banks creating strategic plans, making assumptions about what rates are going to do. But we don’t know when the next war starts, when inflation takes off again, or whether some big spending bill goes through. All of these things dramatically change our assumptions.

So what’s a guy to do during an unreasonable expectation from your board saying, “Well, what are you doing with your strategic plan?” I’ll tell you what. You have to take the interest rate risk out for your bank.

So what does that mean? It means doing whatever you can to make sure you are riding the interest rates—so that you are not locking in for a long period of time, that you have hedged your bets, and that you’re not doing the crazy kinds of things so many of our dear friends did while running banks that no longer exist. They thought they could outsmart what was happening in the economy.

We don’t know. We get gut feelings.

Sometimes those are right. But there is something you can do called hedging your bets. If you’re constantly getting premium pricing on loans without going out too far, and you’re consistently bringing in low-cost deposits—or no-cost deposits—and bringing in a ton of those, you’re going to be okay.

So stop trying to figure out what the crystal ball is saying about interest rates. Nobody knows. Get in the game of managing your bank so that regardless of whether rates go up or down, you’re okay.

Everything is going to be alright.