Navigating Interest Rate Volatility: Strategies for 2026

After several years of unpredictable rate movements, community banks and credit unions are entering 2026 facing continued uncertainty. While inflation pressures have eased, the interest rate environment remains anything but stable. Margins are tighter, liquidity is in flux, and competition for deposits continues to shape the balance sheets of financial institutions across the country. 

In this environment, success depends on more than predicting where rates will go next — it’s about preparing your institution to stay flexible, manage risk, and make confident decisions no matter what happens next. 

At Brady Martz, we work with financial institutions to build strategies that balance performance with prudence. Here are key focus areas to help navigate interest rate volatility in the year ahead. 

Rethinking Balance Sheet Management 

With rate cycles shifting rapidly, asset-liability management (ALM) has never been more critical. The traditional “set it and forget it” approach no longer works. Institutions should be regularly reviewing assumptions around deposit behavior, prepayment speeds, and loan demand to ensure balance sheet models reflect current realities. 

Scenario analysis is a valuable tool here. Modeling both rising- and falling-rate environments helps leaders understand potential impacts on earnings, liquidity, and capital. This information can guide decisions about loan pricing, investment mix, and funding sources — giving boards and management a clearer picture of the trade-offs involved. 

Many institutions are also revisiting their duration and liquidity strategies, diversifying funding sources, and reassessing concentration limits to protect against sudden rate shocks. 

Strengthening Liquidity Management 

Liquidity pressures have emerged as a defining theme over the past few years, particularly as deposit competition intensifies and borrowing costs rise. Maintaining a strong liquidity position means going beyond regulatory minimums — it’s about building resilience. 

Community banks and credit unions should regularly stress test liquidity under different scenarios, considering both market-driven and institution-specific stress events. Diversifying funding sources, managing collateral efficiently, and maintaining access to contingent borrowing lines can all help ensure readiness in a tightening environment. 

Leadership teams should also ensure that liquidity management is integrated into broader strategic and capital planning discussions. A proactive approach can help prevent short-term funding issues from becoming long-term challenges. 

Managing Margin Pressure 

With yields fluctuating and deposit costs rising, net interest margins have come under strain. To manage profitability, institutions are employing a mix of pricing discipline, loan portfolio diversification, and expense control. 

Reviewing deposit pricing strategies and understanding customer sensitivity to rate changes can prevent unnecessary runoff. On the asset side, staying disciplined in underwriting while exploring noninterest income opportunities can help offset compression. 

It’s also worth reexamining how technology and automation can improve efficiency — freeing up staff time for value-added work while maintaining strong internal controls. 

The Role of Technology and Data Analytics 

Interest rate volatility underscores the need for accurate, timely information. Modern ALM and risk management tools can enhance visibility into balance sheet performance, giving management the ability to model scenarios, adjust assumptions, and make decisions based on real-time data. 

More advanced analytics tools can also help identify early warning signs of margin erosion or liquidity stress. Institutions that invest in data-driven decision-making — even at a modest scale — are better positioned to respond quickly when conditions shift. 

Technology, however, should support strategy, not replace it. The goal isn’t more data — it’s better insight. 

Communication and Culture 

Volatile environments require strong communication — both within the organization and with key stakeholders. When boards, management, and staff are aligned around assumptions, risk limits, and contingency plans, decision-making becomes more confident and consistent. 

Equally important is maintaining transparency with regulators, auditors, and even customers. Clear, consistent communication demonstrates proactive risk management and builds trust in your institution’s stability. 

Looking Ahead 

Interest rate volatility will remain a defining feature of the financial landscape in 2026. The institutions best positioned to thrive will be those that treat uncertainty not as a threat, but as a catalyst for stronger governance, sharper analysis, and more agile decision-making. 

At Brady Martz, we partner with financial institutions to strengthen performance, manage risk, and plan strategically for the future. Whether through assurance, tax, or advisory support, our professionals provide the guidance community banks and credit unions need to adapt confidently in any rate environment. Together, we help you build resilience that lasts well beyond the next market cycle.