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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, […]

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 […]

Cost of Funds: Pulling Together Deposit Assumptions

There is a lot of debate on the mathematics and methodology for deposit withdrawal speed and deposit pricing assumptions in different rate environments. Let’s step back for a moment and first ask the question: What is the objective of developing the deposit assumptions? Ultimately, the end objective of these assumptions is to arrive at a […]

Thank Goodness the Proposed Risk-Based Capital Rule Doesn’t Affect Me!

If you’ve looked at NCUA’s calculator and determined that the rule won’t hurt you, go ahead and breathe a sigh of relief.  Then set aside some time to at least look at the table of risk weightings and some of the many analyses that have been done by various groups.  This is a cooperative industry […]

Linking Strategy With Desired Financial Performance

The strategic planning season is right around the corner. At the end of their overall strategic planning process, many credit unions believe they have linked strategy with their desired financial performance. Some credit unions decide on targeted financial ratios and believe they are linking strategy with financial performance, but not high-functioning credit unions. They simulate […]

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