Five derivatives safety tips: accessing power while maintaining peace of mind
Summary
While often viewed as risky and dangerous, this Bank Director article dives into how interest rate derivatives are very powerful tools provided these five important safety tips are considered.We don’t buy products; we “hire” products to get a job done. For banks, interest rate swaps are often just the thing they need to accomplish their most important work.
As Harvard Business School Professor Theodore Leavitt famously said, “People don't want to buy a quarter-inch drill. They want a quarter-inch hole! Banks needing to balance the blend of fixed- and floating-rate loans and deposits on their books, no product gets the job done more effectively than an interest rate swap.
Yet, because swaps carry the label of derivative, many community banks are hesitant to engage them — similar to a first-time homeowner on a DIY project avoiding power tools due to fear of injury or lack of knowledge. To maintain peace of mind while accessing the power of interest rate derivatives, community banks should keep these five safety tips in mind...
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About the author
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Bob Newman
Managing Director
SalesFinancial Institutions | Kennett Square, PA
Bob Newman is a Managing Director in Chatham’s Financial Institutions business and brings nearly 40 years of experience in banking and currently advises community and regional banks in the Mid-Atlantic region.
