Pub. 15 2020-2021 Issue 4

WWW.NEBANKERS.ORG 22 Dale Sheller, The Baker Group. Fighting Margin Compression in Today’s Rate Environment How We Got Here In 2009, some said interest rates had nowhere to go but up. Well, Treasury yields found a way to continue to go down and stay down. The Fed took seven years to increase the funds rate by a quarter point at the end of 2015, then another quarter point increase twelve months later, followed by seven more quarter point rate hikes in 2017 and 2018. All nine rate hikeswereundone by the Fed in a short amount of time, with three of the rate cuts coming in the latter half of 2019as part of a “mid-cycle adjustment.” The remaining cuts came in March as part of a historic monetary response from the Fed. Interest Rate Risk Since 2009, we have been looking at our interest rate risk models and fine tuning our assumptions in order to measure, monitor, and control interest rate risk. Our ultimate goal was to answer the question, howmuch risk is there to our earnings and capital position if interest rates rise? To answer that question,