Manage your bank, not your model

Fixed-Rate Focus Could Spell Trouble for Smaller Banks < Am Bkr

A number of community banks are relying on fixed-rate loans to produce short-term profits, but the move could backfire when interest rates rise.
via americanbanker.com

Andy Kessler-When Interest Rates Rise, Watch Out < WSJ Online

…there is one real market absolute: interest rates. Right now…managers are scrambling their brains trying to figure out when rates will rise, trying to outguess the Fed, other investors and probably themselves.

via WSJOnline

Beware the big errors of “Big Data” < Wired Opinion

I am not saying here that there is no information in big data. There is plenty of information. The problem — the central issue — is that the needle comes in an increasingly larger haystack.
Nassim Taleb via wired.com

Fair Value Still Requires Judgment << Am. Banker

…what is rarely discussed is how subjective the process of marking to market actually is. The fact is, a market value for a product which is not actually being transferred is merely theoretical…
via americanbanker.com

Danger ahead! < What Counts from the FHLB Seattle

Here’s good article from Frank Farone of the Darling Consulting Group.  The full title of the piece is “Danger Ahead! Margins Decline while Interest–Rate Risk is on the Rise!”:

The old adage “garbage in, garbage out” is alive and well in interest-rate risk modeling. We continue to be surprised as to how much “garbage” we still see.
via www.fhlbsea.com

Stress Tests? Baloney << BankThink

By government fiat, bank stress tests are becoming more complex and demanding and are being imposed on larger numbers of banks. Remarkable soothsaying powers are wishfully attributed to these recently built and constantly repainted totem poles.
via americanbanker.com

The Slow Data Movement << Visual Business Intelligence

Big Data is usually defined in terms of the 3Vs: volume, velocity, and variety…I’d like to introduce a set of goals that should sit alongside the 3Vs to keep us on course as we struggle to enter the information age—an era that remains elusive. May I present to you the 3Ss: small, slow, and sure.
The Slow Data Movement: My Hope for 2013 – Visual Business Intelligence

via Visual Business Intelligence

Banking Needs to Get Over Infatuation with Risk Models

The risk profession continues to aid and abet our tendency to want to quantify everything. But understanding real life is ultimately a social, not physical, science.

via American Banker: Bank Think, November 28, 2012

Data-driven to distraction

My wife referred me to this article.  She’s a reading teacher in our local public school system.  It seems that the bank financial and regulatory worlds aren’t the only ones fascinated with data (to a fault in my opinion).  In this article the author deplores excessive reliance on data:

During my first year in graduate school, I was taught that excessive attention to quantitative data impedes – rather than aids – in-depth understanding of social phenomena. In other words, explanations cannot simply be cranked out of statistical analyses, without the need for a precursor theory of some kind – a.k.a. “variable sociology” – and the attempt to do so constitutes a major obstacle to the advancement of knowledge.

I am no longer in graduate school, so part of me says: Okay, I know what data-driven means in education. But then, at times, I still think: No, really, what does “data-driven” mean[…]?

At a basic level, it seems to signal a general orientation toward making decisions based on the best information that we have, which is a very good thing. But there are two problems here. First, we tend to have an extremely narrow view of the information that counts – that is, data that can be quantified easily. Second, we seem to operate under the illusion that data, in and of themselves, can tell stories and reveal truth.

But the thing is: (1) numbers are not the only type of data that matter; and (2) all data need to be interpreted before they can be elevated to the status of evidence – and theory should drive this process, not data.

Data-driven to distraction in school reform | The Washington Post, November 21, 2012

Interest Rate Risk Management at Community Banks < Community Banking Connections

One of the unique opportunities examiners have is to observe both best practices and common weaknesses at a broad cross-section of banks. At community banks, three common deficiencies in interest rate risk management tend to recur and are often cited in examination reports as matters requiring board attention.

via www.communitybankingconnections.org

(Hat tip to Aaron Steinberg of The Bank Safety & Soundness Advisor for bringing this article to my attention.)