Successful loan pricing model implementations rely on many variables including management commitment, lender buy-in, and proper software calibration. Calibration is a 2-step process requiring accurate assignment of product profitability assumptions, and then based on those assumptions, product by product ROE target assignments

Essential Concepts in Pricing Loans Many financial institutions experienced record earnings in 2018.  The one-time impact of the new tax law coupled with continued improvement in both asset quality and loan yields more than offset the rising cost of funds banks experienced in the second half of the year. In 2018, The Federal Reserve continued

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Relationship profitability is an important metric within most pricing models. While it is important to understand the profitability impact of individual new loans, it is crucial to understand how the pricing decision on a new credit will impact the profitability of the entire customer relationship. These relationships often include deposit accounts.

The Federal Reserve continues to gradually tighten monetary policy and increase the Fed Funds Rate. At the same time, the long end of the curve, while flattening over the last 12 months, has increased substantially as well. This has helped increase loan yields, but not nearly to the same magnitude as market yield curves.