Pub. 14 2019-2020 Issue 4

NEBRASKA BANKERS ASSOCIATION 29 Jeffrey F. Caughron is a managing director with The Baker Group, where he serves as president and chief executive officer. Caughron has worked in financial markets and the securities industry since 1985, always with an emphasis on banking, investments and interest rate risk management. Contact: 800-937-2257, jcaughron@GoBaker.com . 5. The bond portfolio can and should be used to lengthen or shorten duration, and to sculpt the cash flow profile of the balance sheet to take advantage of expected shifts inmarket rates and the yield curve. The investment portfolio is the tool with which you can most easily correct Asset/Liability exposures and optimize the balance sheet for the rate environment. 6. Everything happens with a time lag, particularly with respect to deposit pricing. The sharpest increases in cost of funds normally happen very late in the cycle. Banks must be sensitive to the competition, of course, but should also resist the knee-jerk reaction of ramping up deposit rates when the cycle appears to be turning. Banks should keep their balance sheets liability sensitive from the standpoint of Asset Liability Management. 