c. myblog

August 26, 2011

Some Examiner Requests Conflict With Written Guidance – Make Sure to Get Clarity of Reasoning

We are curious as to why some examiners are requesting that credit unions establish risk limits based on 12-month net income simulations. This request is interesting in light of what was outlined in the Interagency Advisory on Interest Rate Risk Management.  The guidance states:  “When using earnings simulation models, IRR exposures are best projected over […]

June 3, 2011

NEV And Net Worth Are Not The Same

Reminder: While net economic value (NEV) and net worth represent two completely different concepts, they are often used incorrectly as interchangeable terms.  Even NCUA sometimes adds to the confusion.  In the April 2011 NCUA Report¹, an article on rising interest rate risk gives an example of a credit union with $5.5M in long-term, fixed-rate mortgages […]

May 13, 2011

Proposed IRR Regulation Could Have Unintended Consequences

C. myers agrees with the objective that most institutions should have an effective interest rate risk (IRR) management policy supported by an effective IRR program.  However, we do not agree that it should be regulation. Keep in mind as you read our comments that our business is to provide asset/liability management services to financial institutions.  […]

April 19, 2011

NEV Shares At Par

Q: Does assuming NEV non-maturity deposits at par isolate changes in balance sheet structure? A: No. Some people think that valuing non-maturity deposits at par is more conservative and isolates changes in balance sheet structure simulation to simulation.  This is not the case.  NEV with non-maturity deposits at par shows exactly the same result whether […]

December 9, 2010

NEV vs. 17-4 Gross Test

Don’t be confused.  The 17-4 Gross Test is not the same thing as net economic value (NEV). NCUA describes the 17-4 as a “quick and dirty” interest rate risk measure.  It is calculated by devaluing fixed-rate mortgages by 17% and adjustable-rate mortgages by 4%.  These devaluation factors represent the price loss on newly issued loans.  […]

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