BROOKFIELD, Wis.-As the Sept. 30 deadline approaches for CUs to have in place a written policy and program on interest-rate risk management, questions have been raised about whether ALM teams have been paying enough attention to the deposit side of the analysis.

According to NCUA's Letter 12-CU-05, CUs above $50 million in assets, as well as those smaller institutions with high interest rate risk exposure, are subject to the guidance.

Several analysts told Credit Union Journal they are concerned credit unions remain unprepared to prevent deposit runoff should a rising-rate environment emerge, an issue that may be being overlooked by many due to the attention to lending risk, a primary focus of NCUA examiners.

Orlando Hanselman, director of education programs for Fiserv, believes there are some credit unions that are now finally turning their attention to preparedness for a liquidity crisis in the event of deposit runoff when rates eventually rise. "I have talked to a lot of credit unions recently," said Hanselman, who spoke this month at Fiserv's Forum 2012 conference in Las Vegas. "The more progressive ones are wrestling with this issue and realize that job has yet to be done, that it is a formidable task, and they are now beginning to dedicate a lot of energy to it."

Hanselman added that most of the credit union leaders he's talked with about deposit rate risk acknowledge their plans at this point are wanting. "The window to create these plans and get them in place won't be open that long before rates start turning, they fear, and said they have to be able to devise ways to retain these newly acquired deposits and shares."

The fact that loan-to-deposit ratios are in the 60% to 70% range at many CUs, Hanselman observed, means it is understandable for credit unions to become complacent and say they have ample liquidity, and not place liquidity risk on the radar.

However, the fact that Hanselman's packed session on liquidity management excellence was one of the most well-attended at the Fiserv meeting indicates that many CUs are now giving the matter priority, Hanselman said.


'Understanding the Vulnerability'

"What I am pleased to hear now is that credit unions are understanding the vulnerability of the newly acquired shares when and if rates begin to rise," he said. "Some credit unions are looking at how much of those deposits that flowed in these recent years will they be able to retain and how much can they afford to lose. They are trying to determine what they can lose and still meet budget and earnings goals. And then, if share loss is greater than expected, what kind of assets will they have to liquidate to remain on target for budgeted goals? CUs are starting to look at things like do they have the ability and capacities to securitize and participate out some of their loans quickly and efficiently-to turn those kinds of loan assets into liquidity."

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