Independent Banker - June 2018 - 22

PORTFOLIO
Portfolio Management
By Marty Mosby, guest columnist
Pressure's on
Marty Mosby of Vining Sparks explains how
community banks can navigate the new
rising-interest-rate environment.
s the Federal Reserve began to normalize
interest rates, the typical U.S. bank has been
able to expand net interest margins by about 10
basis points on average by simply lagging interest-bearing
deposit rates. Historically, U.S. banks
have typically passed along 30 to 40 percent of
the rise in the fed funds rate to their customers.
However, this period of rising interest rates has
been meaningfully different.
The pace of increases in the fed funds rate has
been significantly slower than past periods when
the Federal Reserve has increased short-term
22 Q ICBA Independent Banker Q June 2018
A
rates. In the past three periods of rising interest
rates, for example, it took the Federal Reserve
only six months to increase the fed funds rate by
100 basis points. This cycle, a 100-basis-point
rise in the fed funds rate has taken the Federal
Reserve 24 months.
As a result of this slower pace, we estimate that
bank managements have been able to pass along
only 20 percent of the rise in the fed funds rate
to their customers. This ensures that the U.S.
banks would be able to achieve a much-needed
100-basis-point spread between interest-bearing
deposit rates and the fed funds rate, even if the
Federal Reserve's anticipated rate hikes became
more limited.
We also believe that U.S. banks were able to
Marty Mosby
(marty.mosby@
viningsparks.com) is
director of bank and
equity strategies at
Vining Sparks, ICBA
Securities' exclusive
broker-dealer

Independent Banker - June 2018

Table of Contents for the Digital Edition of Independent Banker - June 2018

Table of Contents
Independent Banker - June 2018 - Intro
Independent Banker - June 2018 - Cover1
Independent Banker - June 2018 - Cover2
Independent Banker - June 2018 - Table of Contents
Independent Banker - June 2018 - 2
Independent Banker - June 2018 - 3
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Independent Banker - June 2018 - Cover3
Independent Banker - June 2018 - Cover4
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