Pub. 9 2019-2020 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S September • October 2019 17 Banks make money by borrowing short-term funds and lending them out for longer-terms. But the inverted yield curve makes that much more difficult. Hence, you may need to consider where and how you can effectively generate fees, to balance out declining loan income. Hedging is one way to do this. Your institution gains even as the yield curve is inverted. Reset existing loans. In an inverted yield curve, borrowers are often tempted to shop their loans to other financial institutions with lower rates. You can proactively staunch potential loan prepayments by offering to refinance your most desirable or valued customers to keep them onboard. Consider loan variant options. While the inverted yield curve does signify a few clear indications, there are several unknowns. If lenders see this rate environment as a sign of Consider loan variant options. While the inverted yield curve does signify a few clear indications, there are several unknowns. If lenders see this rate environment as a sign of coming recession, then they should stick with their knitting and keep booking fixed rate loans. If you need additional information on inverted yield curve strat- egies or help managing the yield curve with PCBB’s Borrower’s Loan Protection product, please contact Matt Helsing. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes: cash management, international services, lending solutions and risk management advisory services, including CECL FITTM. coming recession, then they should stick with their knitting and keep booking fixed rate loans. Lenders who consider the inversion an economic blip (and not indicative of any long- term downturn) might want to offer more hedged floating rate loans. Lenders cash in on the higher floating rate received while borrowers pay a lower long-term fixed rate. n