Credit Unions Decry Examiners' 35% Fixed Asset Ratio
While mortgage loans still make up the majority of credit unions’ long-term asset portfolios, fixed assets, business loans and other long-term investments have grown beyond 35% of the industry’s overall balance sheet.
That level raises a red flag for regulators concerned about interest rate risk exposure.
Henry Wirz understands the value of a second opinion on his balance sheet. As CEO of the $1.9 billion SAFE Credit Union in North Highlands, Calif., Wirz employs an interest rate model that he said shocks the credit union balance sheet by 400 basis points in either direction of the current interest rate to measure the potential financial risk to the credit union at many levels.
In many cases, selling off mortgage loans is not a financially wise or even logical solution, especially for larger credit unions that have other risk-hedging options available to them, according to Peter Duffy, a managing director with Sandler O’Neill and Partners, a New York City-based financial consulting firm. Other hedging tools available, including NCUA’s new ruling on using derivatives, provide more effective and less costly alternatives, especially in preparing for the uncertainty caused by rising rates, he said.