c. myblog

August 8, 2014

Testing the Budget’s Interest Rate Risk

Budgeting season is around the corner. Credit unions will spend valuable time and resources over the next few months developing budgets that achieve ROA and net worth goals. As the budgeting process moves forward and nears completion, decision-makers should ask: What happens to our interest rate risk if the budget comes true? Budgeting helps credit […]

August 1, 2014

Is Your Interest Rate Risk Model Incorporating the Risk of Deposit Mix Changes?

Recently, we blogged about interest rate risk (IRR) modeling methodologies that can give credit unions a false sense of security. (See blog titled “Is Your Risk Methodology Giving You a False Sense of Security?” Posted on July 3, 2014.) We noted that traditional income simulation seldom incorporates the risk of non-maturity deposit withdrawals or member […]

July 17, 2014

Risk/Return Trade-Off—Part I

Cliché? Yes. Often overlooked in decision-making? Also yes. This current long-lasting low rate environment has lulled some credit unions into ignoring the risk of things changing, such as an increase in rates. The focus on return without proper respect for potential risk has led to a material increase in interest rate risk in some institutions, […]

July 3, 2014

Is Your Risk Methodology Giving You a False Sense of Security?

A recent front page article in the Wall Street Journal caused quite a stir by claiming that credit unions are “piling into longer-term assets, exposing the firms to potentially significant losses if interest rates rise…” The objective of this blog is not to debate whether there is or is not too much interest rate risk […]

June 5, 2014

Net Economic Value and Business Decisions: Do You Understand the Trade-Offs?

As a result of running a net economic value shares at par analysis, it appears that some examiners are trying to force credit union CEOs and CFOs to reduce interest rate risk in a rising rate environment by selling assets. While we won’t argue that some credit unions should consider reducing interest rate risk, using […]

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