FORT LAUDERDALE, Fla. – Credit union CFOs are being cautioned by one person that their risk models may be underestimating a pending threat.
Nader Moghaddam, president/CEO of Financial Partners Credit Union in Downey, Calif., believes that while credit unions have built a rising interest rate scenario into their ALM models, they may be miscalculating how quickly rates could rise. “It’s not rising rates, it’s the speed with which they rise,” said Moghaddam, who believes a quick increase in rates may occur in the next year or two. “I don’t think our balance sheets are structured in a way to deal with the speed of this change.”
Moghaddam noted that in his own credit union’s planning, its worst-case scenario for declining real estate values in Southern California was a 25% drop. Instead, the market saw 50% decreases in home values. “I would be very cautious right now. The problem is that after what we’ve gone through the last few years we are very risk savvy,” he said. “Hopefully, we don’t cripple ourselves in our growth opportunities. But there is a new risk coming.”
Similarly, Daniel Frilot, senior risk consultant with Balance Sheet Solutions, a CUSO of Alloya Corporate, noted, “Interest rate risk has everyone concerned with worries over interest rates going up. We’ve been bouncing along the very bottom of the interest rate environment for three years now.”
Both Moghaddam and Frilot shared their observations during CUNA’s CFO Council Annual Meeting here.
