Asset Liability Management
Credit Union Asset Liability Management Solutions
You know risk management should be a part of your tactical and strategic planning process. After all, changes in interest rates happen every day, and these changes can have a material impact on your earnings and capital levels. Asset Liability Management (ALM) gives you the knowledge and insights to proactively manage and position your balance sheet ahead of changes in markets and interest rates.
Supporting the ALM needs of your credit union not only requires a risk measurement model, but the model must meet your balance sheet complexity, reports must be understandable, and information must be available in a timely manner to support decision making. Catalyst’s team does all this.
The Catalyst ALM solutions not only help you measure and quantify your risk exposures, but our team helps you to understand the “why” behind your interest rate and liquidity exposures.
ALM is equal parts art and science, experience and data. Catalyst brings a unique combination of industry experience, modeling expertise and advanced tools to enhance your ALM program. Our industry-leading analytics provide a strong foundation to support your strategies and decision making and our expertise can support your thought process.
Regardless of the level of analytics and support you need; Catalyst offers a wide range of ALM solutions to meet your unique needs.
Catalyst offers a full suite of ALM solutions to meet the needs of any credit union, regardless of size or complexity. Solutions include:
- ALM reporting packages – certified models quantify risk and deliver reliable results to improve decision making.
- Model validation – verify the soundness of risk management solutions and identify areas for potential improvement.
- Model assumption review – Key assumptions are evaluated and tested for accuracy and reasonableness with improvement recommendations for material differences.
- Data integrity analysis – Examination of balance sheet data files uncovers errant loan and deposit account elements.
- Non-maturity deposit analysis – The duration and withdrawal characteristics of our member deposits is an enigma to many; let Catalyst help demystify them.
- Mortgage servicing rights analysis – Determines the fair value of servicing rights, while assessing any impairment
- Liquidity stress testing – Identifies liquidity challenges through a rigorous battery of stress scenarios with detailed monthly projections of cash flows and liquidity capacity.
- Capital Stress Testing – meeting the regulatory capital stress testing and reporting needs of the largest credit unions.
Catalyst’s leading ALM service can be enhanced with a variety of supplemental services to bring more value to the engagement.
- Online “what-if” capability – Perform ad hoc analysis and generate instant ALM results
- Analysis review – Professional review of your analysis with management, Board or ALCO review
- Policy assistance – Expert review and policy advise to ensure proper control, compliance and oversight.
- On-site visits – In-person working sessions tailored to meet your needs.
- Fair value reporting – Concise view of the current balance sheet based on current marketing conditions.
Contact Catalyst to get started.
Important Disclosures:
"Catalyst" is a brand name for the financial services business conducted by Catalyst Corporate Federal Credit Union ("Catalyst"), both directly and through its subsidiaries, including CUSOURCE, LLC, d/b/a Catalyst Strategic Solutions ("CSS"). Balance sheet management services and asset liability management services are offered through CSS, a SEC registered investment adviser. CSS is a separate entity from Catalyst and all investment decisions are made independently by CSS employees. Neither Catalyst nor CSS provide its clients with legal, tax or accounting advice.
Frequently Asked Questions
Ideally, the responsibility for managing interest rate risk belongs to the Asset/Liability Management Committee (ALCO). This would include, at a minimum, the president/CEO, vice-president finance/CFO, and one or two members of the credit union's board of directors.
"There are three methods as defined below:
GAP: adding all interest-earning assets that re-price or mature within a specified time and subtracting the interest-bearing liabilities that re-price or mature in the same time
Income Simulation: projecting income over a specified time and computing the change in income over rising and declining interest rate scenarios
Net Economic Value (NEV): computing the cash flows of all interest-earning assets and interest-bearing liabilities, then discounting or deriving a market value of these assets and liabilities; the result would state the impact that changes in interest rates would have on equity"
Changes in interest rates can impact earnings and capital. A simple example: A credit union has one 15-year fixed rate mortgage loan earning 5.0 percent that is funded with six-month share certificates currently paying a dividend of 3.0 percent. If interest rates rise and the credit union increases the dividend rate on the share certificates to 5.50 percent, interest expense would then be greater than interest income. This can have devastating effects on credit unions, and it’s imperative that these scenarios are accounted for and managed.
Insights from Catalyst
Mortgage-backed securities (MBS) often offer higher yields compared to other investment types, making them an attractive investment for credit unions seeking to enhance their income. The higher yields from MBS can help credit unions meet their income requirements and improve their financial performance. However, the benefits of MBS come with associated risks that must be carefully managed.