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 […]
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 […]
/images/White-Logo.png00Charlene Leland/images/White-Logo.pngCharlene Leland2014-08-01 09:39:002021-01-25 15:31:45Is Your Interest Rate Risk Model Incorporating the Risk of Deposit Mix Changes?
In last week’s blog, we discussed the need to understand risk/return trade-offs and the concern in relying solely on net economic value (NEV) for decision-making. If the objective is to decrease NEV volatility and your strategy under consideration is to A) Sell 30-year mortgages or B) Sell a 3-year bullet, does NEV fairly represent the […]
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, […]
NCUA cited the Basel Committee on Banking Supervision when defining concentration risk in NCUA Supervisory Letter – Concentration Risk: “A risk concentration is any single exposure or group of exposures with the potential to produce losses large enough (relative to capital, total assets, or overall risk level) to threaten a financial institution’s health or ability […]
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Testing the Budget’s Interest Rate Risk
Budgeting, Interest Rate Risk Blog PostsBudgeting 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?
ALM, Interest Rate Risk Blog PostsRecently, 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 […]
Risk/Return Trade-Off—Part II
ALM Blog PostsIn last week’s blog, we discussed the need to understand risk/return trade-offs and the concern in relying solely on net economic value (NEV) for decision-making. If the objective is to decrease NEV volatility and your strategy under consideration is to A) Sell 30-year mortgages or B) Sell a 3-year bullet, does NEV fairly represent the […]
Risk/Return Trade-Off—Part I
ALM, Interest Rate Risk Blog PostsCliché? 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, […]
Concentration Risk in Non-Interest Income?
ALM Blog PostsNCUA cited the Basel Committee on Banking Supervision when defining concentration risk in NCUA Supervisory Letter – Concentration Risk: “A risk concentration is any single exposure or group of exposures with the potential to produce losses large enough (relative to capital, total assets, or overall risk level) to threaten a financial institution’s health or ability […]