The best sources for current pricing assumptions on your institution's loan area will be the loan department, loan officers, and the loan committee. Very commonly, loan pricing is guided by either an internal base index or such standard market indices as Prime Rate, 11th District Cost of Funds, or one of the Treasury indices.
Pricing assumptions for the alternate scenarios could come from examining historical loan pricing during periods of large rate changes.
Our first sample account, Commercial Loans, carries an average rate of 7.612%. Based upon information from the various sources mentioned above, we know that pricing on these Commercial Loans is guided by the "Wall Street Journal" index, one of the indices maintained on the host. Pricing in various rate environments has always followed this index very closely. We therefore decided on the pricing assumption as outlined above.
For our next sample account, R/E Agriculture, we decided to investigate the account distribution via the Account Information Tools.
As you can see, the items are distributed between fixed, floating, and adjustable items. The average weighted rate between these three groups however is significantly different enough that you decided to make split assumptions by item type.
Again, pricing is controlled by the marked index Wall Street Journal and we placed an appropriate spread below the base index to arrive at our pricing level for new fixed rate R/E Agriculture loans. For the alternate scenarios, we again follow the base index in parallel.
We make similar assumptions on the floating and adjustable rate items to arrive at current pricing levels.
