rates on these accounts, as they will still be below alternate funding costs. Investment Portfolio Conundrum Some institutions may have decided that they’re not taking any risk by accumulating cash. However, we challenge that thought: If the Fed starts cutting rates and your institution doesn’t get a meaningful and immediate COF improvement, your institution’s earnings on that cash are going to drop immediately. And so, institutions that are asset-sensitive or holding cash today need to consider the immediate margin compression that could occur once the Fed starts cutting rates. In the meantime, locking into investments closer to cash rates today can help hold yield until the COF starts to decline. A balanced investment strategy could allow your institution to add a mix of securities that average a yield close to Fed Funds with an allocation to call-protected assets. We urge management teams to consider the trade-off of investing in only the highest yield options compared to the potential benefits of adding assets with call protection that could result in an unrealized gain when the Fed lowers rates. Finally, it’s important to keep in mind that repeating the past is unlikely, but it’s still essential to learn from it. Understanding the choices that your institution made, and then making informed decisions is how your institution can and will put its best foot forward. Kent Musbach is a senior vice president and Marc Gall is a senior vice president and asset/liability strategist for BOK Financial Capital Markets. Contact BOK Financial Capital Markets at (866) 440-6514 to discuss the latest economic outlook and timely considerations. We can help guide a unique, well-conceived strategy that considers many variables and potential outcomes. The opinions expressed herein reflect the judgment of the author(s) at this date, and are subject to change without notice. The information provided has been obtained from sources believed to be reliable, but not guaranteed. Forward-looking statements contained herein are based on current expectations and the economy in general, and are not guarantees of future performance. Likewise, past performance is not a guarantee of future results. BOK Financial® is a trademark of BOKF, NA. Member FDIC. Bank dealer services offered through BOK Financial Capital Markets, which operates as a separately identifiable department of BOKF, NA. BOKF, NA is the bank subsidiary of BOK Financial Corporation. Investment products are: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE. 15 In Touch
RkJQdWJsaXNoZXIy MTg3NDExNQ==