By Lonnie Harris
Balance sheet management has always been difficult but never more so than in today’s extended low-rate environment. Since December 2008 when the Fed dropped overnight funds to a range of 0-25 basis points, many of the “routine” decisions were replaced with uncertainty and downright confusion. In retrospect, it is apparent that most managers were initially too conservative, as they expected rates to increase almost immediately. This period was followed by impatience and more accurately, market pressure, which has resulted in duration extension in both the loan and investment portfolios, at historically low rates. These phases were not necessarily knee jerks, but it is questionable how much planning and modeling actually preceded those decisions.