c. myblog

April 9, 2015

Evaluating Derivatives―Part VI: Why Use Derivatives?

With the derivatives rule that went into effect in 2014, NCUA gave credit unions access to a new tool to help mitigate interest rate risk. Although a derivatives pilot program has been around since 1998, derivatives are still a relatively new thing to the industry. Past blogs in this series have provided the reader with […]

March 13, 2015

Voice your concerns NOW about NCUA’s consideration of adding a separate IRR component to RBC

If RBC 2.0 passes as written, each credit union defined as complex will be required to quantify their unique risks and maintain adequate capital to back those risks, all of which is to be supported by a written strategy. Excerpt from proposed RBC 2.0, §702.101 (b) Capital Adequacy: “(1) Notwithstanding the minimum requirements in this […]

December 12, 2014

Evaluating Derivatives—Part I: Earnings

While derivatives can be a good tool for mitigating interest rate risk, it is important for credit unions to understand the cost of the protection they are purchasing. This example uses an interest rate swap with the following terms to illustrate: 7-year term Notional amount: $100 million Credit union pays fixed rate of 2.00% Credit […]

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 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 […]

Start typing and press Enter to search