c. myblog

October 2, 2014

Non-Value Add Activities: Where Are They?

Sometimes we are our own worst enemy—and it’s not intentional. Credit unions have spent the past few decades growing from tight-knit, job-related hubs to financial institutions prevalent in the whole community. Credit union staff are finding that some of the activities and roles that once made sense have become outdated and no longer add value. […]

September 26, 2014

Isolating Interest Rate Risk with a Static Balance Sheet

Some will say that a static balance sheet income simulation achieves its objective of isolating interest rate risk by reducing the variables in the simulation. The question then is: What risk should be isolated? Interest rates change and cash flows do not change Interest rates change and cash flows change in response If the answer […]

September 18, 2014

Forecasting Considerations

Many credit unions have started their budget and, similar to prior years, stress testing key assumptions should be an important part of the budget process. Last year, we emphasized the importance of testing out different rates of loan growth. While that continues to be an important stress test to perform, provision for loan loss (PLL) […]

September 11, 2014

Why Are My Income Simulation Results so Strong in a Shock?

In performing model validations for credit unions, we often see income simulation results that show significant improvement in net interest income (NII) and net income (NI) as rates rise, even for credit unions that have material positions in long-term, fixed-rate assets.  Why does this happen, and is it reasonable? Income simulations are commonly run with […]

September 5, 2014

One Tip for Evaluating the Reasonableness of Non-Maturity Deposit Assumptions Used in Net Economic Value

Should decay assumptions change as rates are changing? Absolutely! When we complete model validations of credit union or vendor-supplied interest rate risk results, we see all too often that decay assumptions don’t change as rates are changing. This assumption is like saying non-maturity deposit cash flows will remain constant and unchanging regardless of what rates […]

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