Then, as a follow up question, Jamie in the outlook on in interest revenue obviously, you guys got it down a little bit. But if you’ve had to paint two scenarios, one is the bullish scenario, what would rates have to do where you could actually see maybe deposit betas stall out faster? Or net interest revenue picks up? And then what’s the more cautionary view? Is it higher rate, not the frozen rate, five and a quarter, but we get the six and a half or something like that on Fed Funds rates in the first quarter of 2024? Can you give us those two variables?James Leonard Yes, I would say that. On the positive side of net interest income, if the industry and the competitive dynamics settled down over the next couple of months, couple of quarters, then we would expect that we would operate in that low to mid 40s beta and that would deliver the higher end of our NII guide.
We’re a little cautious though, in what we’re seeing from a competitive standpoint, as banks are clearly focused on driving, more insured retail deposit growth, and therefore the retail beta is the wildcard in our guide, and why we show the range of deposit betas that could play out and therefore the range of the NII guide is a little wider than what we normally would do just given the uncertainty with how competition will react.So in the near term, that is the wildcard that perhaps retail deposit betas which had been very well behaved actually double by the end of the year. And that would take us to the low end of the guide. I think longer-term when it comes to rates progressing beyond five and a quarter. It really comes down to what are the credit implications as the Fed reaches an even higher level.
We think the magnitude of the rate increases have certainly created some shock across the country. And you saw that obviously, in what we’re calling the March Madness. But I think from an NII perspective, those higher rates could continue to be productive as long as the deposit beta dynamics stay in the 40% range. But if competition heats up, and we get into a 60% plus beta environment, that would be unproductive to NII.Gerard Cassidy Very good. Thank you.Operator Our next question comes from the line of Ken Usdin from Jefferies. Please proceed.Ken Usdin Hey guys, good morning. As you as you as you think further out, I know Jamie would talked about that, that trying to channel that downside, NIM. Obviously, the rate environment has changed and all the points about the mix and the deposit growth have as well.
But just in terms of just how the how you expect the balance sheet mix to change over time, given that you’re running down the securities book and your points about the DDA mix. How do you just think about that NIM protection angle, and does it make you think any differently about your, the way you built the swaps portfolio and protecting that? Thanks.James Leonard Yes, we feel very good about how the balance sheet is positioned, especially for a downgrade environment. Obviously, the swaps we’re very pleased with the entry points there. We’ve talked at length about in 2025, there’ll be a nice increased NII as the new swaps kick in. In terms of the investment portfolio positioning, we’ll have a bit of a decline in the second quarter as we don’t reinvest cash flows, but from there should be relatively stable.
We may continue to reposition non-HQLA and the level ones but ultimately that’ll be regulatory dependent, but overall feel good about the bullet locked out nature, the structure that we have. So I think for us, it’s going to be more of operating in a high 70s loan to deposit ratio and continuing to maintain that while being very disciplined on credit which is why the loan growth guide was trimmed a bit to that up, up 2% to 3% level.Ken Usdin Got it. And then on the same point about that deposit repricing isn’t when the Fed does got in and obviously a lot of banks are guiding with the with the curve right now, how does your models work in terms of timing of Fed cuts versus your ability then change the direction of deposit pricing?James Leonard Yes, I mean, in general, it’s going to be, it’s a balance of that nature of when the cuts actually occur.
If you’re in a foreign liquidity environment where things still are relatively tight, the Fed has gotten inflation under control, but there’s not a big credit event obviously, the measured cuts would be one where you’re going to have a little bit more challenging time, reversing all the beta, you’re still going to get some of the beta out. But in this scenario, where the Fed is having to loosen liquidity conditions pretty rapidly, you’re going to have an opportunity to get a little bit more aggressive on your rate cuts from there and get some more of that beta out. So it really is going to be a little bit of a balance of how things play out.We’ve spent a lot of time positioning the commercial book in particular, to make sure that we stay with the appropriate amount of price sensitivity there so that we can reprice down as necessary.
We’re up to about $20 billion of index deposits. So we’re taking a lot of actions to make sure that we’re well positioned, whether they stay high, or if they cut that we’ve got the flexibility to navigate through those different environments.Ken Usdin Understood, thank you.Operator Our next question comes from the line of Erika Najarian from UBS. Please proceed.Erika Najarian Hi, good morning.James Leonard Morning, Erica.Erika Najarian My first question is on the potential coming regulatory environment. And Jamie, you probably need something stronger than coffee for this question. But the first is on CT1, you generated 30 basis points of capital organically this quarter. And I’m wondering as there’s no NPR yet, but the market is anticipating tighter capital and liquidity standards.
Tim, how do you think about the endpoint of capital for an institution like [Indiscernible] from this nine and a quarter? And how should we think about, what that sort of endpoint is over the medium term, and the role of share repurchases, and potentially more RWA optimization?Timothy Spence Sure. I’m going to let Jamie start on that one, Erica, and then I’ll follow.James Leonard So from a short term perspective, obviously pausing the buybacks, and given the second quarter guide, we would expect to your point that we would continue to generate, call it 25 basis points of capital, even with some RWA growth in the second quarter. I do believe that it will be dependent on what the regulations ultimately come out with in order to then answer the medium term part of your question, because if I were king for a day, I would not change the AOCI opt out rules because this was not a capital crisis.
I think the capital regime works as stated. But should they decide either to eliminate, held to maturity and force everybody in the AFS and then force AFS into an AOCI mark, perhaps the core earnings capacity of the company along with you, we included in the deck additional capital accretion measures, that we would improve the AOCI levels by 45%, by the end of next year. But it would be a manageable item for us; we just don’t believe it’s necessary. We have a balance sheet that our target capital level is 9%. All stress testing says 9% is great. But, in this environment, we’re going to accrete capital here in the short term and will get to 950. And hopefully have a little more clarity for everybody next quarter.Timothy Spence And I think just to add two thoughts.
Our capital stress testing indicates you could run the bank at below 9%, which is the reason that hasn’t been the binding constraint for us. We just elect to do it at the level we do because we like stability, right? And I think we were clear with everybody when we reset the capital target last year, we did it because we were concerned about uncertainty in the Outlook, and we felt that it was prudent to start building capital early as opposed to having to do it later.So I am pleased in our positioning, I think more broadly one caution I would give everybody is I think some will take the discussion about change in regulation on capital liquidity and just bake it into models. Without assuming that there’s any sort of evolution in the business model.
The FDIC has been publishing quarterly data on the sector, I think since 1934. At least the dataset goes back that far. And there’s been more than one regulatory regime change during that period. And if you adjust for tax, the tax policy at a given point in time, the return levels in the sector have been remarkably consistent. So to the extent that more banks are required to hold more capital, or more liquidity, or to change the structure of funding, I think it’s reasonable to expect that the business model is going to evolve, as well.Erika Najarian Got it. It’s amazing how resilient banks can be when there’s some level to rates. Right. And just a follow up question to that, for — this management team is sort of well known for being more forward thinking, whether it’s your balance sheet resilience to what’s been happening in the right environment, or that, ACL ratio.
