Risk-Based Capital Update:
NCUA Promises Revisions to Risk Weights

By Mark H. Smith

The comment period for NCUA's risk-based capital rule is closed. The proposed rule ignited a record number of comments for any NCUA proposal. A casual perusal of the proposal reveals a definite negative response to NCUA actions. In this article we will review NCUA's recent statements at the NCUA listening session June 26, 2014 in Los Angeles. In the session NCUA reiterated its claim that the proposal will have minimal impact on the credit union system and its members. However Chairman Debbie Matz also indicated that NCUA will revisit its proposed risk weights in all areas, and specifically mentioned mortgage loans, member business loans, investments, investment in CUSO, corporate credit union perpetual capital. Chairman Matz acknowledged that in these areas, any adjustments made would "presumably" lower the risk weights.

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ALM: In-House or Outsource? (Part II)

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

Part One of this article focused primarily on the costs and benefits of performing ALM analysis in-house. In Part Two we will explore the costs and benefits of outsourcing the ALM analysis function to a third party service provider. As in Part One we will endeavor to identify the total cost of this solution. This evaluation should also consider the third party service provider selection as costs and additional value added benefits among third party service providers can vary widely.

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Economic Update

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

It's quarter end for credit unions and we are now halfway through 2014. As we take inventory of the economic environment for credit unions this year there are some encouraging data points and news coming for interest rate expectations. In general, the economy has continued to improve and there have been some indicators that loan demand is getting better for credit unions.

First looking at the interest rate front, on June 30th San Francisco Fed President John Williams spoke about the timing of the next Fed move. Dr. Williams highlighted the fact that he believes the Fed will allow inflation to move above their 2.0% target rate for "as long as" it is driven by "transitory forces." He also said that as long as the economy continues to perform as it is now, he expects the Fed will increase the Federal Funds Target Rate during the second half of next year. He reiterated that recent data are "consistent with that." For many of our credit union clients we would welcome higher interest rates as long as the move upward is slow. If Dr. Williams of the San Francisco Fed is correct in his forecast we are just one year away from higher overnight interest rates. Longer term interest rates could be moving up sooner.

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Client Corner: Fishing for Non-Maturity Deposit Assumptions

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

There are several approaches to estimating the share and deposit assumptions in the modeling of interest rate risk. It's a challenge, kind of like fishing! In this month's Client Corner I've shared some thoughts that may be helpful.

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Upcoming Webinar

Latest Update on the NCUA Risk-Based-Capital Proposal
(Sept. 16, 2014, noon MDT)

We'll examine NCUA's latest posture on their Risk-Based-Capital proposal, and also explore an interesting perspective on how RBC could impact your own balance sheet strategy.

Note: The webinar date may change to coincide with late-breaking actions by the NCUA in response to the 90-day comment period and the in-person feedback they have been soliciting around the country. We'll publish any date changes on the web site and notify all webinar registrants via email.

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Is Your Regulator Requesting a Third-Party Review?

A third party review is frequently requested by regulators who would like to see a second opinion as to the quality of the credit union's IRR management process. Learn More

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