NCUA's IRR Concerns Valid: Analyst
Greg McBride, Bankrate.com’s chief financial analyst, told CU Times short-term interest rates will likely rise in the middle of next year, while long-term interest rates could increase at any time.
“As we saw this time last year, that can happen very suddenly. We’ve been lucky so far in 2014 in that long-term rates have actually moved down – not to say that’s going to continue in perpetuity as we get closer to an eventual hike in short-term rates by the Fed,” McBride said on Wednesday.
“Long-term rates can move up at any point. Some of the inflation indicators of late are the type of thing that could make investors nervous and push long-term rates higher,” he added.
The NCUA has raised concerns about credit unions’ exposure to interest rate risk.
"I am concerned that the message [about rates] is either not getting through, or it's getting through and they are just choosing not to do anything about it," said NCUA Board Chairman Debbie Matz in a controversial June 9 Wall Street Journal article.
McBride said the NCUA’s interest rate concerns are valid. He predicted that a long-term rate hike could occur well ahead of any short-term rate increase by the Fed.
“We got a snapshot of that last year where long-term interest rates jumped a full percentage point in about a seven-week period and as a result, a lot of bond funds suffered losses for 2013. It was a harsh reminder of interest rate risk and that’s the type of thing that could certainly happen again,” he said.
However, CUNA and NAFCU have said credit unions have planned accordingly to protect their portfolios against rate increases.
“Credit unions are safe and sound institutions and have successfully weathered the recent financial crisis because of their prudent business model, and they have been widely lauded for it. An integral part of that business model is managing interest rate risk and strict adherence to regulatory requirements,” NAFCU President/CEO Dan Berger said.