The subprime mortgage fiasco continues to ripple through the economy and wreak havoc in the credit markets. It now appears likely that the resulting problems will last longer than anyone feared. Fortunately most community banks have steered clear of purchasing private-label, mortgage-related bonds or collateralized debt obligations. Those banks that were sold such items are now coping with the realization that the risk likely exceeded the reward, and the cleansing may be painful. Community banks are wise to use the bond portfolio in the traditional manner - as an earning asset which serves as a store of liquidity and safety, and a vehicle with which to manage interest-rate risk.
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"Avoiding the Pitfalls: Sound Investment Management for Community Banks"Please download to view full document