November 2022

INTEREST RATES... from page 18.

decisions to consider alternative investments, such as trea suries. Measured strategies for rate of return had gained attention and took precedence over safety found under the FDIC umbrella. Associations with excess reserves found themselves willing to take longer term risk with the “almost” assurance of guaranteed return. In economic environments, there can be several solu tions for one problem - no one size fits all. There are also political factors which must be considered. Financial institutions will also have to consider regulatory implica tions on the continued deployment of capital and overall impact to the money supply. No individual or organiza tion has a crystal ball to predict the overall endgame. One thing for certain is the current rate of inflation is a problem, therefore, the expectation is there will be ongoing rises in interest rates. The current rate of FFT is 3.0 – 3.25% and New York Fed Reserve President, John Williams, predicts FFT will soon be over 4.5% to achieve two goals: maximum employment and price stability. This course, however, will increase the stress on banking’s HOA and condomnium business by reducing originations and promoting deposit attrition. n

ronment. Associations refinanced their mortgages, (some took out new debt). The banking system was also flushed with liquidity so there was no impetus to pay high rates on interest-bearing accounts and reserves. Banks intrinsically sustain themselves by the delta in which they lend money and pay interest – Net Interest Margin. Paying higher yields would be detrimental to the banking system and/or banks did not need funding. For boards, the risk of perceived gains outside the banking world was too great or unknown. Then the pendulum shifted... rates spiked, decisions reas sessed, and mindsets changed. Boards and management companies found themselves in a position on whether to pursue or rethink lending needs, realizing the cost of bor rowing increased. The concept of special assessments also became prevalent. Until now, borrowing funds at record lows overshadowed this discussion, which has immediate fiscal impact to residents. Unfortunately, there isn’t a right or wrong decision as interest rate pricing is relative to the market. Inversely, rising rates have encouraged boards’

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