c. myblog

August 9, 2013

Borrowing Rates Are Up– Now My Credit Union Has Less Risk?

Net economic value (NEV) is often cited as one way to quantify the interest rate risk exposure of a financial institution. While there are many concerns with relying upon NEV to provide good decision information, this discussion focuses on recent changes in interest rates and the resulting impact to the NEV of credit union shares. […]

May 16, 2013

Investment Decisions: Reaching for Yield

As deposits continue to grow and loan growth is a struggle, many credit unions are wondering what they can do with their overnight funds to pull in some extra yield.  Below is a case study of a credit union that has positive earnings and not much interest rate risk as seen by the 9.54% net […]

May 3, 2013

NCUA’s Interest Rate Risk Questionnaire – Starting the Conversation

More institutions are being presented with NCUA’s Interest Rate Risk Questionnaire in advance of examinations and being asked to fill them out. During the preparation for an examination, this may seem like the last thing a busy management team should be concerned with, but it should be taken as an opportunity to refresh credit union […]

April 11, 2013

Do A/LM Modeling Results Match What’s Intended?

Is your A/LM model producing the intended results?  During the course of validating other A/LM models, sometimes we see inputs that appear reasonable on the surface but are not producing the intended results. When conducting a recent credit union model validation, we were asked why the model showed a loss on 30-year mortgages when the […]

March 7, 2013

Interest Rate Risk Prepayment Assumptions Vs. Observed Behavior

When you or your examiner are evaluating assumptions used in your A/LM model to quantify interest rate risk (IRR), is the objective to prove the assumptions are right?  Or, is it to prove that the assumptions are reasonable and (when possible) supportable?  According to NCUA’s IRR Questionnaire, the answer is you and the examiner “should […]

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