Articles

Credit unions are currently facing liquidity challenges as loan demand remains steady and deposits decline. Typically, loan demand remains high during the summer months, while members withdraw some of their deposits to fund vacations. In this article, we will provide an overview of strategic considerations when evaluating liquidity options, given the uncertainty of future interest rates.

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The combination of persistently high inflation and the Federal Reserve’s historically quick rate tightening has lifted longer-term yields and slowed mortgage prepayments, lengthening assets at many credit unions.  With 30-year mortgage rates currently near their highest levels in the past twenty years (currently revisiting the range of 7.00%+ levels, initially breached last fall), virtually all mortgages on credit union’s books are exhibiting very low prepayment speeds. 

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Accolade has compiled some data around auto lending trends that may help provide context for setting asset allocation in 2023. While many of the data trends we’re seeing are troubling for auto lenders, we are likely still in the normalization phase from the incredibly low levels of credit issues that we saw through the pandemic period.

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The NCUA Supervisory Test is intended to be used to measure asset sensitivity to rate changes by applying standardized market values to the credit union’s non-maturity shares. In early September the NCUA updated its interest rate risk supervisory framework to address concerns about the test's results.

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Now that we find ourselves in a more attractive rate environment credit unions have a golden opportunity to improve net interest margins and loan-to-share ratios – if only they had the liquidity to support it. This article offers ideas to help your credit union meet liquidity targets. 

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Over the last nine months we have seen the biggest yield curve shock in over twenty years. After the CPI print for May came in at a higher than expected 8.6% year-over-year rate, the yield curve has rocketed even higher and we are seeing red across virtually all bond prices.

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ALM modeling helps to understand the impacts of different interest rate environments on profitability and capital. While consistent and careful review of these reports is critical to strategy, it is doubly so when interest rate moves are anticipated.

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Non-Maturity Deposit Accounts are your primary source of funding, but they do not have contractual maturies or repricing schedules. To appropriately assess the interest rate risk of the balance sheet, assumptions must be made as to the rate sensitivity (betas) and expected maturity (WAL/decay rates) of these funds. 

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NEV is one of two measurements that ALM modeling uses to assess your interest rate risk. NEV stands for net economic value and is sometimes referred to as the economic value of capital at risk. NII represents net interest income, sometimes referred to as the income simulation. In this article, we’ll define NEV and discuss examples of how to read the measurements.

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ALM modeling is used to gain insight into the potential impacts of changing interest rate environments on both the credit union’s equity or capital as well as its profitability or ability to generate earnings. In short, ALM modeling is for measuring interest rate risk.

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