30 SEPTEMBER / OCTOBER 2020 COVID-19 and Bank Liquidity PRODUCTS & SERVICES PROFILE Rod Lasley Executive Vice President - Operations & Member Services Indiana Bankers Association rlasley@indiana.bank @rodlasley We are into the third quarter of 2020, and community banks are flush with liquidity. They also are unsure, understandably, how to invest that liquidity with rates near record lows. Everywhere you look there are challenges. You consider investing short and waiting for rates to go back up, but the Federal Reserve has indicated it wants to leave short-term rates unchanged through the end of 2022. You look into investing in municipal bonds, but are worried about the impact of COVID-19 on municipal credit risk and the potential for higher defaults in that sector. A possible consideration is investing in mortgage-backed securities, but you worry about the impact of rising delinquencies and forbearance on their cash flows. Finally, you consider agencies and certificates of deposit, but the yields are practically zero and would not earn much more than at the Fed. How should community banks address these challenges while trying to stay fully invested? Our partners at The Baker Group have been working closely with our member banks to address these challenges so they can successfully invest their excess liquidity to maximize performance, while also managing acceptable risk tolerances. The Baker Group recently published an article, “Managing Bank Liquidity and Performance After COVID-19,” that addresses the liquidity challenges banks are facing today. This article, available online,* provides insight into possible opportunities for your bank. Currently, The Baker Group works with nearly 40 Indiana institutions to develop, implement, monitor and update a financial strategy unique to each client. Every institution has characteristics that make it different from the next. There are never any cookie-cutter, one-size-fits-all questions, but there are always answers. The professionals of The Baker Group realize the investment portfolio must be managed in the context of the bank’s overall growth and business strategies, and they will utilize all of the company’s knowledge and resources to help your institution achieve its financial goals. With day-to-day issues that continually pop up, it is easy to lose focus on the overall goals. Baker will provide assistance in making sure the bank’s portfolio stays on point toward the fulfillment of those goals. With the uncertainty of the regulatory climate after COVID-19, and how regulators will view various parts of your bank, The Baker Group is an outstanding partner to have by your side to address any concerns raised in the area of interest rate risk, investments or liquidity. It is Baker’s job to stay on top of the changing regulatory environment so your financial institution is prepared and understands what to expect from regulators. Baker can assist in: investment strategy development; investment education; asset/liability reporting and process review; online strategy and outlook sessions; and strategic planning. The Baker Group is a Preferred Service Provider of the Indiana Bankers Association and an IBA Diamond Associate Member.
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