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 […]
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 […]
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 […]
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 […]
When approaching net economic value (NEV) analyses, the issue of valuing non-maturity deposits has been a point of contention for practitioners and regulators alike. The focus traditionally is on the question: What is the final maturity of a deposit that contractually never matures? In the end, the nature of the question of maturities needs to […]
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