By Mark H. Smith
In its IRR Regulation adopted in September of 2012, NCUA clearly defined the responsibilities for managing IRR. In Part 3 of Appendix B, NCUA names the board of directors as responsible for approving policy, major strategies, and prudent limits regarding IRR exposure.
The board is charged with the responsibility to ensure that the professional management of the credit union executes an effective IRR program. Additionally, the board is charged with making an annual assessment and determining that the IRR program sufficiently identifies, measures, monitors, and controls the IRR exposure. It goes on to say the board may obtain professional advice and training in going about its responsibilities.
The CEO and other senior officers of the credit union, under the direction of the board, carry out the IRR management process. The Regulation also allows for the injection of an ALCO into the management process. The following specific responsibilities are mentioned:
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By Jason Williams, Financial Analyst
Traditionally, inflation is measured by the Consumer Price Index (CPI) which creates a baseline for a basket of goods purchased by a typical household and then measures the increase (or decrease) in the prices of that basket of goods over time.
Weaknesses of the CPI are, of course, the fact that a basket of goods cannot possibly represent all of the goods and services that a consumer will buy and the fact that the basket of goods will change over a 5, 10, or 20 year period.
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By Mark H. Smith
Segmentation strategies continue to evolve as a tool to manage the cost of funds and optimize the flow of deposits.
The objectives of a segmentation strategy are:
- Separate rate-sensitive from non-rate-sensitive deposits;
- Minimize the cost of non-rate-sensitive funds at a very low level
- For rate-sensitive deposits, minimize the cost at or below market rates and control the flow of funds. That is, attract needed deposits when necessary and discourage undesirable deposits.
- Validate the rate sensitivity assumptions used in your income simulation modeling scenarios.
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For Credit Union CFOs and Financial Managers needing a more robust training regimen with respect to IRR, we will be traveling to approximately 30 cities in the US in the second half of 2015. We will be presenting a live intermediate-level seminar addressing credit union interest rate risk.
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May/June 2015
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Client Corner: What Can MHSI Do for You?
By Cynthia R. Walker, CEO, Mark H. Smith, Inc.
Many of you are aware of the services offered by Mark H. Smith, Inc., but sometimes as I talk with clients they realize they may not be fully utilizing the resources which we offer.
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