Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: accountclosed who wrote (934)	4/18/1999 5:45:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

The inflation risk is more of a generalized risk for the economy and market as a whole. If inflation returns it would have impact on long term growth prospects. Also interest rates would rise. Fwiw my own opinion is that inflation will not be a problem for at least several years.

To: accountclosed who wrote (934)	4/18/1999 5:54:00 PM
From: Paul Berliner	Respond to of 2794

It all depends on how quickly interest rates increase - if they rise only gradually, the impact on net interest margin is manageable to a degree, though net interest income would have to be hit to some extent. From KeyCorp's recently filed 10-K405: MEASUREMENT OF SHORT-TERM INTEREST RATE EXPOSURE: The primary tool utilized by management to measure and manage interest rate risk is a net interest income simulation model. Use of the model to perform simulations of changes in interest rates over one- and two-year time horizons has enabled management to develop strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of various pro forma changes in the overall level of interest rates. These estimates are based on a large number of assumptions related to loan and deposit growth, asset and liability prepayments, interest rates, on- and off-balance sheet management strategies and other factors. Management believes that both individually and in the aggregate these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not a precise calculation of exposure. The ALCO guidelines provide that a gradual 200 basis point increase or decrease in short-term rates over the next twelve-month period should not result in more than a 2% impact on net interest income over the same period from what net interest income would have been if such interest rates did not change. As of December 31, 1998, based on the results of the simulation model using the ALCO guidelines, Key would expect its net interest income to increase by approximately $32 million if short-term interest rates gradually decrease. Conversely, if short-term interest rates gradually increase, net interest income would be expected to decrease by approximately $30 million.