Situation: Lenders Bank’s commercial loan customers want fixed rate loans. Concerns over asset/liability mismatches and possible margin compression due to unexpected interest rate movement suggest that floating rate loans should be booked by Lenders Bank.
Echo Solution: Convert fixed rate loans to floating with an interest rate swap.
Results: Lenders Bank keeps longtime customers happy and books profitable loan business that they might otherwise miss. Lenders maintains ALCO guidelines and improves interest rate sensitivity while earning the targeted Libor margin.