Nomis Solutions Unveils Index, Estimates Fed-Funds Rates Impact on Portfolios

Nomis Solutions today announced the launch of the Nomis Index an interactive informational tool to model how changes in the target Fed-funds rate, as well as a bank’s chosen strategy, could impact a bank’s deposit balances, margins, and expenses. Nomis Index generates a number of profitability scenarios depending on the pricing response chosen by the bank and its competitors. It is the first conceptual portfolio risk analysis tool available at no charge to bank executives.

“Today’s rate rise will be only the second rate increase in ten years,” said Frank Rohde, president and CEO of Nomis Solutions. “Many bank executives, who have never operated in a rising rate environment, may be unsure of which pricing strategy to pursue and are vulnerable to making a wrong decision. Is the course of no-action better than the alternative? What impact will a lag pricing strategy have on my portfolio? These are questions they need answered.”

According to Rohde, the banking environment today is dramatically different compared to the years between 2004 and 2006 when the benchmark federal-funds rate increased 425 basis points. Banks today face increased competition from direct banks, Fintechs, and neo-banks. Empowered consumers shaped by a continuous flow of web, mobile, and social information regarding their personal finances, have more choices and higher demands than in the past. In this unforgiving environment, a bad decision in response to rising rates can be costly given how fast consumers and competitors can react. Advanced modeling and deep analytics can help banks respond faster and more intelligently.

The Nomis Index enables bank executives to leverage pricing science and actual numbers from their own portfolios, to test their pricing strategies under different scenarios and easily see the impact. For example, using the simulator a bank executive can choose to respond to a Fed-fund rate hike of 0.25% with a lag, match, or lead pricing strategy. The simulator will automatically analyze the impact on that specific bank’s portfolio balance, profitability, and interest costs.

The Nomis Index leverages publicly available data and Nomis’ proprietary pricing science developed from more than 80 implementations to provide a high-level estimate of risks and rewards of pricing decisions for a savings portfolio. It should not be used to replace or inform a business or pricing strategy, but rather serve to demonstrate the power of this technique. For more accurate and timely insights on the susceptibility of a savings portfolio to attrition, the amount of portfolio balances that are at-risk, and which customers are likely flight risks, a customized portfolio analysis with Nomis deposits experts is recommended.

Key features of the Nomis Index include:

  • Simulates the impact of various pricing decisions in response to a target Fed-funds rate increase on portfolio balances, net interest margins, and interest expense costs as it pertains to non-transactional liquid deposits (e.g. savings and money market deposit accounts)
  • Allows bank executives to further customize the following key parameters: the portfolio size of non-transactional liquid deposits, interest expense, and interest spread
  • Leverages Nomis Solutions’ generic deposit model library and expertise