Watching Out for Sucker Holes

By Mark H. Smith
CEO, Mark H. Smith Inc.

Surprisingly, pilots of airplanes have much in common with credit union CEOs. Each mush be constantly on the lookout for hazards that can endanger their path. A common hazard often found in bad weather is what pilots call a sucker hole. A sucker hole is a route that appears to offer a clear pathway beneath low clouds through a valley or canyon. It can be very deceiving. What looks from one end to be a clear path often leads into a dead-end canyon or higher terrain. At its best it elevates the heart rate. At its worst, it can be tragic.

I believe there may be a sucker hole lying in wait for some credit union CEOs and financial managers. It takes the form of the large short-term investment portfolio that many credit unions carry. On its face, you may ask, how can my short term investments pose risk to my credit union? True, they are problematical because short-term investment portfolios are producing near zero income; but how does it rise to the level of sucker hole with serious consequences?

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Are We Headed for a Fiscal Cliff?

By Mark H. Smith
CEO, Mark H. Smith Inc.

At MHSI we have always advised our clients not to walk along the edge of a cliff with regard to risk management. The credit union is a highly leveraged financial institution and a minor hiccup could send it over the edge. Staying back, away from the edge of the risk cliff is always a good approach for credit unions.

Well here's one cliff that may be unavoidable. On January 1, 2013 a combination of events are scheduled to occur that resemble a fiscal cliff for our country's economy. Briefly, here's what's on the fiscal menu.

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Economic Outlook

The economic outlook for the foreseeable future is being forecasted as more of the same by most prognosticators. In his July 2012 webcast, Dr. John D. Worth, Chief Economist for NCUA pointed out the risks that the US economy faces are significant and eminent. Chief among Dr. Worth's concerns was the Eurozone recession and the possibility of a disorderly default among some of the weaker Eurozone members. In our world economy, the recession in Europe and inherent instability poses a significant threat to their neighbors across the Atlantic. Additionally, Dr. Worth warned of the fiscal cliff looming at year-end if Congress is unable to resolve major fiscal issues (see "Fiscal Cliff" article in this newsletter). Dr. Worth also warned of the low level of the Consumer Confidence Index. On the positive side he noted that home prices are stabilizing and have begun rising in some regions of the country. The monthly webcast is available on the NCUA website.

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Client Corner

Getting Involved
in the Process—Loan Repricing Assumptions

By Cynthia R. Walker, COO, Mark H. Smith, Inc.

The new IRR regulation adopted by NCUA this year requires credit union management to be engaged in the process of IRR estimation and management. A key part of IRR estimation is determining what assumptions to make as to loan repricing speeds.

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Webinar News

All MHSI webinars are absolutely complimentary and open to any credit union employee or volunteer. Click for a complete webinar schedule and a link to the registration process.

Swimming with the Sharks—
In September 2012, the monthly topical webinar series will return after a summer hiatus.
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Managing IRR in Today's Regulatory Climate
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ALM 101 —
An Introduction to IRR
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Liquidity Risk 101 —
An Introduction to Liquidity Risk and a preview of the preposed NCUA liquidity regulation
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Concentration Risk —
An Introduction to
Concentration Risk
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IRR for Volunteers —
Basic IRR Training for
Credit Union Directors
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ALM Pro Report Training —
For clients using the
ALM Pro Report
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