Understanding balance sheet impacts in uncertain times

Understanding balance sheet impacts in uncertain times

Uncertain economic times lead to market volatility and shifting rates, calling for an active, tailored and disciplined approach to balance sheet management. BOK Financial Capital Markets works with community banks and credit unions, providing guidance to meet the unique needs of institutions, their goals, and risk profiles. Trusted financial experts should provide actionable insight that helps keep senior management focused on what matters most—our goal is to help clients formulate a strong, flexible strategy to avoid impacts to earnings and maximize performance.

Kent Musbach, SVP and team lead, as well as Marc Gall, VP and A/L strategist, share a glimpse of recent client discussions.

Rising interest rates

As expected, the Fed recently began tightening monetary policy, projecting a significantly higher target rate ahead. As this cycle ages, it’s important to monitor the shape of the curve, as well as the relative performance across spread and risk assets. A key topic with clients involves how potential rate changes impact the balance sheet and investment portfolio, with Musbach and his team helping institutions anticipate and plan for all rate scenarios. Among considerations are effects of a flatter curve or deposit to-loan pricing adjustments. Musbach said, “We ask if clients have a forwardlooking, adaptable strategy to perform best in differing rate environments, as relying on current projections may prove costly.”

Persistent inflation

Long considered stable, and recently “transitory,” inflation persists at 40year highs. Though assumed to recede, variables for consideration include:

-Will interest rate expectations change?

-Will supply chain issues ease?

-Will hiring accelerate?

As Musbach observes, the stock market or housing could react negatively, and an economic slowdown may occur. Alternatively, consumers may tap savings, heating up inflation.

Compressed net interest margin

Financial institutions also must counter shrinking margins, as pandemic-related activity and fees only softened the blow of a worsening industry trend—and it’s important to consider any longer-term margin levers to pull.

“Our goal is to understand each individual institution, provide actionable insight and strategy, ultimately leading to decisions that suit the client, their goals and objectives best.” -Marc Gall.

Bank dealer services offered through Institutional Investments, Bank of Oklahoma, which operates as a separately identifiable trading department of BOKF, NA. Services may be offered under our trade name, BOK Financial Institutions Group. BOKF, NA is the bank subsidiary of BOK Financial Corporation. Some services may be offered through BOK Financial Securities, Inc.