Guest Opinion: Board's ALM Review and Training Are Critical
In light of the financial challenges faced by credit unions over the past few years and specifically the increasing interest rate risk that comes with many credit unions borrowing short to lend long, the NCUA has refocused its attention on asset-liability management functions. Most recently, the agency issued rules requiring complex credit unions to develop a written IRR management policy and process as part of their ALM responsibilities. The NCUA said such policies will be considered in determining the insurability of credit unions.
The bottom line is your credit union’s ALM policy needs to lessen the possibility of unforeseen future losses caused by changes in interest rates. It’s both a regulatory mandate and strategic management tool. And considering the historic low-rate environment, it requires even more serious interest by your credit union’s staff and those on the asset-liability committee.
Hope is not a plan. Following a gut instinct is not the path for consistent success. Understanding how to alter your credit union’s path based on statistics is a far more effective way to obtain a strong balance sheet.
While no amount of preparation can predict the future, having your credit union prepared for multiple scenarios puts your asset-liability committee and management team in a better position to succeed. We cannot know what the future holds. The benefit of running multiple scenarios is that it allows management a glimpse into “what could be” when considering future options.