The Federal Reserve signaled their expectation to continue Fed Funds rate increases in 2017, but substantial uncertainty remains about when and where market rates will move. Credit unions can find it challenging to achieve a desirable ROA today while maintaining an acceptable level of risk should market rates increase. Decision-makers have a variety of options […]
Credit unions purchase derivatives for interest rate risk (IRR) protection. As we consider the value that can be obtained from derivatives, it also makes sense to ask how that protection may change over time and if there are circumstances that might make the protection not as beneficial. Many of our clients are using or considering […]
With the derivatives rule that went into effect in 2014, NCUA gave credit unions access to a new tool to help mitigate interest rate risk. Although a derivatives pilot program has been around since 1998, derivatives are still a relatively new thing to the industry. Past blogs in this series have provided the reader with […]
Credit unions purchase derivatives to receive value: interest rate risk protection. This blog series set out to help decision makers understand the variety of outcomes they could observe over the life of a derivative, and how those outcomes will ultimately determine the value realized. Over its life, derivative economic value is impacted by two forces: […]
Our last post on derivatives explored the relationship between rate shocks and changes in value. Inherent to this was a caution that improvement in value due to changes in the implied path of interest rates doesn’t guarantee cash flows will be positive in the future. The economic value analysis is typically limited to assuming an […]
