Every one of the nation’s 14,600 banks should have a written investment policy. A written investment policy integrates the bank’s investment activity with its other activities. Significant changes in cash position, borrowed funds, the quality and maturity of loans, the nature and stability of deposits, capital position or dividend payout will often require corresponding changes in investment strategy.

If too vague or general, a policy will not serve the purposes of bank managements, boards of directors and regulatory authorities, who prefer specific statements they hope will preclude unpleasant surprises. Bank investment officers, on the other hand, usually advocate general guidelines that permit wide latitude in carrying out their duties. The author presents a model investment policy that can be adapted to the specific needs of individual banks. It fixes responsibility for managing the investment portfolio and the broad limits of its composition, lists acceptable securities and specifies their approximate quality, and suggests how the portfolio should evolve in successive phases of the interest rate cycle.