Case Study: Loan Level Hedging

June 20, 2014 Chatham Financial

Financial Institutions Case Study: Loan Level Hedging

Our Client:

A regional bank with an established hedging program.


The bank was looking to expand its loan level program under the supervision of a former derivatives marketer and had faced challenges on the accounting for its balance sheet derivatives. The bank called Chatham on the advice of its employee, who had prior interactions with Chatham in his former role as a counterparty to other Chatham clients.


Chatham Financial assisted the bank by loading all of its existing trades into its proprietary system, including the balance sheet derivatives that needed accounting re-designations. Chatham reviewed the confirmations on all of the trades, along with the ISDA agreements with existing counterparties, to ensure appropriate terms and counterparty diversification. Chatham hosted management at their campus to educate top officials on its turn-key approach to loan level hedging, analyzed the potential income for a more robust loan level program (based on the bank’s historical loan volumes), and traveled to the bank’s headquarters to conduct in-depth training on derivatives with its loan officers.


The bank has established new metrics and incentives for its loan officers, and it has begun emphasizing floating-rate loans to mitigate the bank’s overall interest rate exposure. Fee income has increased; the bank has become more competitive in its market; and the private-label derivatives program should play an important role in the bank’s future earnings.

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