Prepare for Your Upcoming Exam
A successful exam is often tied to the preparation done in advance. Simply having the most recent A/LM results ready, without understanding the overall risk profile and rationale for key assumptions, is not a recipe for success.
One best practice in preparation for an upcoming exam is to anticipate some questions that could arise and how management would respond. For example:
- How is the credit union positioned with respect to interest rate risk and liquidity risk?
- How did management determine their A/LM policy risk limits? Is the credit union within established limits?
- What are the loan prepayment assumptions used in the A/LM modeling and how were they determined?
- What are the non-maturity deposit assumptions used in the A/LM modeling and how were they determined?
- Has management run stress tests in the A/LM model with other maturities, rate sensitivity factors, decay rates, prepayment assumptions and/or performed other what-if analysis? If yes, does it materially change the risk profile?
- Does management document the model assumptions and any changes made to the model assumptions?
- Have there been any major changes to the credit union’s strategic plan or business plan, or are there any future events that will change the credit union’s interest rate or liquidity risk position?
A/LM providers can be a resource for exam preparation. Quarterly results calls are a great opportunity for decision-makers to gain a better understanding of the credit union’s risk position. Also consider an exam prep call with your A/LM provider a week in advance of the exam. There is always an element of unpredictability when it comes to examinations but following this practice can better position the credit union for success.
