Delfi’s New Risk/Return Benchmark Credit Unions and Banks If Their Rate Risk Is Paying Off

Delfi has launched a Risk/Return Benchmark that lets U.S. banks and credit unions check their margin against a select group of peers and see whether they’re being paid enough for the interest rate risk on their books.

The concept behind it is risk-adjusted return, which simply weighs the margin an institution earns against the rate risk it takes to earn it. If two institutions post the same margin, the one carrying less rate risk has the stronger result. The benchmark is built to expose gaps in that math, so leaders can see where their balance sheet isn’t pulling its weight.

Delfi’s PhD economists, who bring Wall Street quantitative experience, built the tool as part of the company’s mission to put Wall Street-grade analytics in the hands of Main Street institutions. A community bank or credit union can use it to see whether its rate risk earns as much margin as its closest peers earn at the same level of risk.

“Taking more risk should come with more reward, but that’s not the case for too many community institutions,” said Daniel Ahn, PhD, Co-Founder and CEO of Delfi. “We’re giving banks and credit unions a way to see where their risk is paying off and where it isn’t, and we’re showing them what unlocked income potential could look like.”

Delfi’s own analysis suggests the gaps are common. More than 60% of banks and credit unions trail their best-performing peer by at least half a percentage point of projected margin, after that peer’s margin is adjusted to the same level of interest rate risk. For those institutions, the median potential gain tops $2.5 million in additional net interest income every year.

The benchmark slots in alongside Delfi’s existing balance sheet optimization products:

• Overwatch Essentials: assesses balance sheet risk through deterministic simulations and stress tests.
• Overwatch Predictive: evaluates potential strategies through probabilistic simulations and what-if scenarios.
• Exchange: lets institutions execute capital markets strategies via curated access to financial instruments from third-party suppliers.

Joseph Ahn, PhD, Co-Founder and Chief Strategy Officer, framed the benchmark as the first step in a sequence. “Knowing you have a gap is only useful if you can close it,” he said. “Delfi’s Risk/Return Benchmark shows an institution where its gap is. Delfi Overwatch then helps it build a strategy to close the gap, and Delfi Exchange lets it execute that strategy through the capital markets. It’s part of the Delfi ecosystem we are building.”

To mark the launch, Delfi is offering free reports generated by the tool. Each one covers your institution’s:

• 5 nearest peers: the institutions you typically benchmark against.
• Optimal positioning: the best risk-return combination your balance sheet could reach.
• Untapped income: the added net interest income available without taking on more risk.
• Recommended strategies: specific moves you can execute to optimize your balance sheet.

If you work at a bank or credit union, request the free report and take it to your next ALM or finance meeting. Start with the untapped income figure and the five peers listed, then ask whether your current rate risk is earning its keep.