Yesterday, Dallas Wells from Asset Management Group posted the most insightful article on the state of community banking I’ve read in a long time. In the article, Dallas points to a rather alarming trend… Over the last four years, smaller community banks (less than $10B in assets) have doubled their long-term holdings – moving from 18% to 36%, while the larger banks are holding fast.
“…Regulators are concerned that community banks are ill equipped to manage interest rate risk of this magnitude, and worse, they fear that small banks are victims of “duration drift.” In other words, the asset extension has not been intentional, but has instead happened over time without the banks necessarily even seeing it happen. Because of this, expect regulatory scrutiny of interest rate risk to not only stay high, but perhaps even increase…”
Trends like this will undoubtedly have an enormous impact on the ability of smaller community banks to survive the inevitable rate rise. If your bank fits into that category, you absolutely owe it to yourself to have a conversation with Dallas.