In the example, we have chosen to make an assumption at the Total US Gov Agency AFS & HTM level. Having examined the yields and volumes in the various accounts, as well as the yield on the subtotal account, we determined that it was appropriate to make an assumption at the subtotal level. This provides all the Institution's Agency AFS & HTM accounts with an assumption. Accounts that are yielding above or below the subtotal level were determined to not have significant enough volume to affect the overall projection.
The assumption we made is based upon an artificial index of Fed Funds that was added to the Index assumption section. Typically institutions do not maintain such an index on their host system, so we added it. We then created an appropriate spread at the "+/- 0" scenario to approximate our current yield.
We chose to maintain the spreads in the other scenarios the same as our current scenario. This may not quite be appropriate, since yields typically do not fall or rise in parallel with the projected shock scenarios. However, we decided not to make any guesses as to the flattening or steepening of the yield curve in the other shock scenarios.
Fed Funds Sold / Purchased
Fed Funds Sold / Purchase accounts are required to have an assumption made by the user.
The following error messages will be displayed during processing if either accounts does not have an assumption.
A good indicator for setting assumptions on either account would be the rate that your institution currently receives or pays when selling or purchasing Fed Funds.
In the example, we are basing your Reinvestment rate on the Fed Funds index we have added to the system. The Fed Funds key accounts should have the same reinvestment rate as the base index Fed Funds rates. If they are not the same you will have problems balancing your branches (if branching is set up).
We followed the same principle for your Fed Funds Purchased account.
