c. myblog

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 […]

February 28, 2013

Excerpt: A Few Things To Consider Before Purchasing A Derivative

While many credit unions work on what seems to be a more immediate issue – increasing loan volume – it is important not to forget the looming issue of interest rate risk. Rates have been at historically low levels since the end of 2008 and the Federal Reserve has indicated it expects rates to remain […]

August 23, 2012

For Your Radar: Proposed FASB Update On Liquidity And IRR

From now until September 25, the Financial Accounting Standards Board (FASB) has a Proposed Standards Update open for comment regarding liquidity risk and interest rate risk. The proposed interest rate risk disclosures, if passed, would provide dangerous and misleading information about the safety and soundness of a financial institution, and therefore, the financial services industry. […]

April 19, 2012

Have You Reviewed Your Policies Recently?

Historically, credit unions may have been wary of making material changes to their policies, whether an A/LM policy, Liquidity policy, Investment policy or broader Financial Management policy – for fear of raising regulatory “red flags.”  However, with the adoption of the final rule on interest rate risk (§741.3(b)(5)(i)), and the effective implementation date of September […]

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