Search: "interest rate risk"

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 […]

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 […]

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 […]

Concentration Limits and Interest Rate Risk – a Moving Target

Over the last few years, many credit unions have been asked to complete concentration risk policies and develop limits founded on some type of analysis.  Some institutions have also included limits in their policy designed to mitigate exposure to interest rate risk as a supplement to more traditional asset/liability management practices.  These limits should be […]

Interest Rate Risk and Member CD Early Withdrawals

An important component of A/LM modeling that some interest rate risk (IRR) models ignore is applying early withdrawal assumptions to Member CDs. This is especially true for credit unions whose members are rate sensitive and/or accustomed to higher rates. If models do not consider early withdrawals, the benefit of longer-term CDs can be materially overstated […]

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