by Emily Moré Hollis - CFA,
Partner of ALM First Financial Advisors
Archive
June 2010
Some interest rate risk (IRR) is inherent in the business of banking, but what best practices and management techniques can I follow to ensure sound IRR management and minimize IRR exposure in this current market environment?
May 2010
What are swap spreads?
April 2010
In a recent exam, the NCUA told us that their ALM risk measurement tables are only guidelines and should not be used.
February 2010
I've heard from some sources that buying callables rather than bullets is not a good plan. They say that from a total return perspective, the bullet will yield more. But if I buy a three-year callable and the yield to call (YTC) and yield to maturity (YTM) are both higher than a bullet agency with the same maturity, and I never plan to sell the bond, then who really cares about total return?
January 2010
Our credit union is performing fairly well in this environment, but examiners seem to have a different mindset. The focus seems to be to reduce risk to a point where we can’t make money. Am I missing something?
December 2009
If you fall in the “low” risk category for both the net interest income (NII) simulation and net economic value (NEV) analysis, do you have to worry about interest rate risk?
Should you move rates up to double-digit figures in order to really test your inherent interest rate risk?
November 2009
Should you use par values for all non-maturing deposits?
October 2009
When should you perform an ALM validation or back test your models?
September 2009
Should you use the same rates for reinvestments in the net interest income (NII) simulation as the discount rates in the net economic value (NEV) analysis?
August 2009
A.) The Net Interest Income Simulation (NII) shows a gain in net income should rates rise; however the Net Economic Value (NEV) analysis shows a negative value in the “moderate” interest rate risk range. Are the reports erroneous?
B.) If you do the NII analysis, is the NEV analysis not important?
July 2009
We have noticed from the increasing number of questions that examiners are paying greater attention to ALM methodologies, practices, and most importantly user knowledge. Questions relating to ALM issues have been appearing on examiner comments and requests. The following is a compilation of statements which will be addressed in the next few Ask Emily articles.
Some don’t have easy answers, some are true and some are simply wrong.
June 2009
I read a recent article analyzing one of WesCorp’s securities; CUSIP 751153AC. The bond did not appear that bad and indicated only minimal losses, which wouldn’t be incurred for five years; what are your thoughts?
May 2009
I found your article on the structure of bonds extremely interesting. I was told that the mezzanine bonds were rated AA, which is a very high rating, so how can they potentially lose principal? Also, how can I look at a rating and know how much principal will be lost?
April 2009
I read your article on Other than Temporary Impairment (OTTI). Are you saying that if the accounting rules are changed, that there should be gains in non-conforming securities?
February 2009
Note: This month Emily takes a departure from her usual question and answer format and offers her thoughts on accounting rules SFAS 115 and EITF 99-20.
January 2009
Have you heard about the major banks issuing debt that is guaranteed by the United Stated Government? Where are these securities trading and can credit unions invest in these vehicles?
November 2008
Last year you listed broker projections on interest rates and it really helped us with our budgeting process, will you be doing it again this year?
October 2008
Do you believe that this government bailout is a good thing?
September 2008
I am a board member of a $500 million credit union and I must confess that I don’t really understand all this talk about the credit crisis. Is it real? How can a financial institution say that they have wiped out their equity, but only on a temporary basis? If my investments lose value, even if I have not sold, to me, it is still a loss.
August 2008
What is a commercial mortgage backed security and do credit unions purchase them?
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