Asset Management Group, Inc. (AMG) is a wholly owned subsidiary of Country Club Bank and has been serving community banks since 1995.  AMG offers a range of asset/liability management services designed to manage risk and improve margins while also meeting regulatory requirements and expectations.  

AMG frequently receives questions from banks regarding policy limits for interest rate risk and where those should be set.  Certainly, bank management preferences, risk tolerances and capital levels help to answer these questions but another important piece of information is what other banks are doing, which is the topic for this Pro Shop.

The OCC publishes the Interest Rate Risk Statistics Report on a semi-annual basis which presents interest rate risk data gathered during examinations of OCC-supervised banks and savings associations.  Exhibit 1 is from page two of their Fall 2024 report and shows policy risk limits for parallel interest rate shifts for All Banks.  The OCC report also shows this for different sized banks as well.
 

The first three columns are for 12-month net interest income and the last three are for economic market value of equity.  The 25th percentile columns represent the widest numbers because only 25% of the banks fall into this category.  The 75th percentile limits are lower as 75% of banks are in this.  

AMG has a compilation of policy limit data for its clients as well.  In Exhibit 2, the third column is the BanPath average (150+ banks) for net interest income for 12 months using ramped interest rate shifts.  These policy limits are similar to the OCC 25th percentile limits which are shown again in Exhibit 2 for comparison purposes along with the OCC 75th percentile.

The last two columns of Exhibit 2 show the BancPath policy limits for shocked interest rate shifts for both year 1 and year 2 of projected net interest income.  Again, these are the averages for all BancPath clients.  Note here how year 1 of shock is larger than the ramp scenario.  This is because changes in income will be larger in shock scenarios vs. ramp so higher policy limits are required to be consistent.  The same is true where year 2 of shock is larger than year one of shock because changes will usually be greater in the second year due to additional repricing in the balance sheet.

Exhibit 3 shows Market Value of Equity policy limits for the OCC and BancPath.  The BancPath averages are closer to the 25th percentile numbers from the OCC.

When setting interest rate risk policy limits, there are many factors for bank management to consider, but knowing where other banks are setting their limits is a helpful data point to include in the process.

For further information on our Asset / Liability Management Reporting and Consulting services or any of the other services provided by AMG, please feel free to reach out to your Capital Markets Group Investment Sales Representative.  You may also contact AMG directly at 800-226-1923 or at    AMG@CountryClubBank.com.