The Texas Independent Banker - May/June 2017 - 20

Something Is Better Than Nothing
In the meantime, a tool was developed that
was easy to use and simple to understand.
Pick a time period, say twelve months, and
calculate the dollar amount of earning
assets that potentially reprice over that
span. We'll call these "rate-sensitive assets."
Then, compare that dollar amount to the
dollar amount of rate-sensitive liabilities
that could reprice over the same period. The
difference came to be known as "the gap";
thus, gap management was born.

Advantage Health Plans Trust

Health, Dental, Vision, Long Term and
Short Term Disability, AD&D, Group Term
Life and Voluntary Life
Melissa Nance 800-521-1711

American National Insurance
Company
Credit Life, Gap Waiver Insurance,
Involuntary Unemployment Insurance
(IUI) and Debt Cancellation
Kevin Moore 281-535-7469
Balloon Note Financing
Doak Dunkin 800-234-6401

The Baker Group

Broker/Dealer, A/L Management
Mike Mackey 888-480-0301

CalTech

Managed IT Services
Brad Giddens 325-223-6100

Computer Services, Inc.
Secure Connect
WatchDOG Social Compliance
Bill Evers 800-545-4274

D+H

MortgagebotTM
POS and LOS Solutions
Kevin Paugh 714-427-1036

Dell, Inc.

IBAT's Dell ID#: GS126658178
Workstations, Servers, Printers, Desktops,
Laptops, Ultrabooks, Tablets, Electronics
and Accessories, Services and Software
Bryan Horten 512-942-9120

Deluxe Corporation

Check Printing ServicesTM
Deluxe Business AdvantageSM
Deluxe Detect®
Deluxe ProventSM
Matt Bycroft 678-427-9879

Merchant Processing Services
Michael Peterson 214-843-2108

Glory Global Solutions

Teller Cash Dispensers, Teller Cash
Recyclers, Quickchange Machines
Kurt Klassen 847-707-6392
Car Rental Discounts, CDP#46681
Jason Scully 239-301-7648

Expense Management Program, Office
Supplies, Promotional Items, Turn-Key
Marketing
Mark Wood 972-446-9283 x106

Diebold Nixdorf

ATM Security Products & Services
Bank Operations Equipment & Supplies
ATM Equipment
Integrated Services
Russell Bond 469-418-4882

First Data Online Banking

Internet Banking Systems, Bill Payment
Harry Whitman 806-679-9782

IndependenT Banker

Fitech Payments

The Hertz Corporation

Deluxe Strategic Sourcing

Call Curt Nelson: 512-275-2240

20 The T1exas
860866_Editorial.indd

On the surface, the reasoning behind gap
management's utility seemed pretty sound. If
bank management knew that it had a greater
volume of assets repricing than it did liabilities, a condition known as "positive gap,"
it could conclude that net interest income
(NII) would increase in a rising rate environment. Conversely, if the volume of repricing
liabilities was greater than the volume of
repricing assets, the bank was "negatively
gapped," and earnings would suffer if rates
rose. Makes sense, right? Well, it might if the

MG Architects

Architecture, Planning & Interior Design
Scott Clanton 713-552-0707

Promontory Interfinancial
Network

CDARS, Insured Cash Sweep Service
Chuck McBrayer 866-776-6426 x3432

PULSE Select®/ MoneyPass®
Surcharge-Free ATM Network
Mark Martin 832-214-0247

Live in the Now
While not totally without use, gap-driven estimates of how earnings might be impacted
by changing rate environments have always
been inaccurate at best, and downright
misleading at worst. Take, for example, the
bank that is negatively gapped. Following
"gap logic," management will perceive that
net interest income (NII) will be impaired
by rising rates and may feel a need to "fix the
problem." But, "gap logic" ignores the fact that
most of the bank's liabilities are in the form of
non-maturing deposits (NMDs) that are very
rate insensitive and significantly lag the market in rising rate environments. Under these
commonly occurring circumstances, a negatively-gapped bank can, and probably will,
still benefit from rising rates. Management's
efforts to fix a problem that doesn't exist can
prove costly and counterproductive.
Thankfully, there are now computer models that can, account by account, recognize
that rates charged to loan customers will
behave differently than rates paid to depositors. The ability to factor in pricing betas
along with time lags gives the whole measurement and management process a greater
degree of reliability and precision.
So, if your bank is one of the many holdouts still clinging to those gap reports, think
back to that old 8-track player you might have
had in your car. It's only a matter of time
before it eats the tape.
■

SecureWorks

Information Security, Compliance, Risk
Management Services, Security and Risk
Consulting
Kevin Jordan 214-236-5339

www.ibatservices.com

May/June 2017

rates on assets that earn money and the rates
on liabilities that cost money all moved at the
same time by the same amount. But, the world
doesn't work that way and gap management
alone could not, with any degree of precision,
account for the differences in magnitude and
timing that describe how the interest rates
that generate income behave differently than
the interest rates that incur expenses.

3/1/17

3/10/17 1:21 PM

Lester Murray joined The Baker Group in
1986 and is an Associate Partner within the
firm's Financial Strategies Group. He helps
community financial institutions develop and
implement investment and interest rate risk
management strategies. Before joining The
Baker Group, he worked at two broker/dealer
banks in Oklahoma City and was also an assistant national bank examiner. A graduate of
Oklahoma State University, he holds Bachelor
of Science degrees in finance and economics.
Contact: 800-937-2257, lester@GoBaker.com.


http://www.ibatservices.com

Table of Contents for the Digital Edition of The Texas Independent Banker - May/June 2017

Up Front CHRISTOPHER L. WILLISTON, CAE
General Counsel’s Corner KAREN M. NEELEY
Services Spotlight JOE KIM KING
The Compliance Guy KELLY GOULART, CRCM CAMS CIA
News
Leadership Conference Preview
Gap Management: An Idea Whose Time Has Gone LESTER MURRAY
IBAT 2017 Regional Meeting Tour CHRISTOPHER L. WILLISTON VI, CAE
In an Uncertain World, Look for the Silver Lining MARK ROE
Farewell from Mae Beth
People
Calendars
New Members
Index of Advertisers
Communities
The Texas Independent Banker - May/June 2017 - cover1
The Texas Independent Banker - May/June 2017 - cover2
The Texas Independent Banker - May/June 2017 - 3
The Texas Independent Banker - May/June 2017 - 4
The Texas Independent Banker - May/June 2017 - 5
The Texas Independent Banker - May/June 2017 - Up Front CHRISTOPHER L. WILLISTON, CAE
The Texas Independent Banker - May/June 2017 - 7
The Texas Independent Banker - May/June 2017 - General Counsel’s Corner KAREN M. NEELEY
The Texas Independent Banker - May/June 2017 - 9
The Texas Independent Banker - May/June 2017 - Services Spotlight JOE KIM KING
The Texas Independent Banker - May/June 2017 - 11
The Texas Independent Banker - May/June 2017 - 12
The Texas Independent Banker - May/June 2017 - The Compliance Guy KELLY GOULART, CRCM CAMS CIA
The Texas Independent Banker - May/June 2017 - 14
The Texas Independent Banker - May/June 2017 - News
The Texas Independent Banker - May/June 2017 - Leadership Conference Preview
The Texas Independent Banker - May/June 2017 - 17
The Texas Independent Banker - May/June 2017 - 18
The Texas Independent Banker - May/June 2017 - Gap Management: An Idea Whose Time Has Gone LESTER MURRAY
The Texas Independent Banker - May/June 2017 - 20
The Texas Independent Banker - May/June 2017 - 21
The Texas Independent Banker - May/June 2017 - IBAT 2017 Regional Meeting Tour CHRISTOPHER L. WILLISTON VI, CAE
The Texas Independent Banker - May/June 2017 - 23
The Texas Independent Banker - May/June 2017 - 24
The Texas Independent Banker - May/June 2017 - 25
The Texas Independent Banker - May/June 2017 - In an Uncertain World, Look for the Silver Lining MARK ROE
The Texas Independent Banker - May/June 2017 - 27
The Texas Independent Banker - May/June 2017 - 28
The Texas Independent Banker - May/June 2017 - Farewell from Mae Beth
The Texas Independent Banker - May/June 2017 - People
The Texas Independent Banker - May/June 2017 - 31
The Texas Independent Banker - May/June 2017 - Calendars
The Texas Independent Banker - May/June 2017 - Index of Advertisers
The Texas Independent Banker - May/June 2017 - Communities
The Texas Independent Banker - May/June 2017 - cover3
The Texas Independent Banker - May/June 2017 - cover4
The Texas Independent Banker - May/June 2017 - 37
The Texas Independent Banker - May/June 2017 - 38
The Texas Independent Banker - May/June 2017 - 39
The Texas Independent Banker - May/June 2017 - 40
The Texas Independent Banker - May/June 2017 - 41
The Texas Independent Banker - May/June 2017 - 42
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