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Is your balance sheet ready for rising interest rates
MADISON, Wis. (6/11/10)--Credit union managers and boards nationwide are keeping two main concerns about interest rates in the forefront--when and how quickly they turn around, and what credit unions should do to prepare for interest rates’ upturn, according to Southwest Corporate FCU Investment Services. The question all credit unions should be asking is, “Is our balance sheet well-positioned if interest rates were to begin rising tomorrow?” wrote Mark DeBree, Southwest Corporate manager of asset liability management (ALM) services, in an article titled “Managing Interest Rate Risk: What Goes Down Must Come Up!” “A strong asset/liability management program can help credit unions position [that question] relevant to two others: How much risk does a credit union have to rising rates? And what is the credit union strategy when interest rates do change?” Debree added. To have a sound risk-management process, one should:
* Understand and be familiar with the assumptions used within the ALM process; * Ensure that the analyses measuring interest rate risk are accurate and presented in a timely manner; * Designate senior management responsibility for managing the credit union’s risk exposure; and * Ensure that credit union personnel are capable of understanding and communicating the resulting risk exposures to examiners and the board.
“When properly tuned, an ALM model addresses the identification, measurement, monitoring, and reporting of interest rate risk exposures,” Debree wrote. “Credit union senior management is ultimately responsible for making the decisions for controlling or managing that risk. For this reason, examiners want to ensure credit unions understand ALM and are able to incorporate the ALM results into their risk management and decision-making processes.” To read the article, use the link.
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