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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