c. myblog

January 15, 2015

Evaluating Derivatives―Part II: Economic Value

In a previous blog, impact to earnings was discussed as it relates to derivatives and the insurance they can provide against a rising rate environment. While derivatives can be a good option for hedging interest rate risk, especially in today’s low rate environment, it is also important to consider how economic values are determined. Because […]

August 15, 2014

NEV: Do the Values Make Sense?

There is some debate regarding reasonable methodologies and approaches for loan discount rates for an NEV analysis. Discounting to the current offering rate, to a comparable asset-backed security rate and including a credit risk spread are just a few of the approaches that are debated. Regardless of the assumptions approach, the values need to make […]

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 […]

February 27, 2014

NEV: Things to Remember

Net economic value (NEV) will not show you the effect on current earnings when testing risk-mitigating strategies. To illustrate, assume a credit union concerned about its interest rate risk is considering selling all of its 30-year, fixed-rate, 1st mortgages. The credit union plans to put the proceeds into overnights to give themselves the best hedge […]

January 30, 2014

A/LM MODELING: NEV and NII Assumptions: Things to Consider

Market interest rates have been sitting at or near record low levels for almost five years. As a result, credit unions are booking assets at very low rates and, in many cases, lengthening their balance sheet to slow the decline in yield. From a business perspective, it makes sense for credit unions to be especially […]

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