LAS VEGAS -
Brad Cunningham, WesCorp's vice president of financial consulting services, told the Credit Union Journal the starting point of the workshop was each credit union's representative measuring the credit union's NEV, or net economic value. He said NEV is defined as the market value of a credit union's assets minus the market value of its liabilities.
"Then, we shock interest rates up 1%, 2% and 3% and down 1%, 2% and 3%, looking for changes in NEV," he explained. "The bigger the negative percentage change, the more risk a credit union has on its balance sheet."
Each table of the workshop had a WesCorp facilitator present. Cunningham said the facilitators are trained to look for the biggest risks-usually long-term loans such as 15- and 30-year mortgages.
He said credit unions with large holdings of long-term loans should "motivate" their members to look into variable-rate adjustable rate mortgages (ARMs).
In addition, "Liabilities can be structured to act as a natural hedge," he said. "Thirty-year loans should be backed by long-term liabilities, including 10-year certificates or stable core deposits."
According to Cunningham, the round-table, participatory format of the workshop allows credit union representatives to share strategies on what they have done in the past to manage risks, including development of products that mitigate risk.
The benefit to WesCorp, he added, is goodwill from credit unions in thanks for "formalized networking opportunities."
"Many people, especially those who are new in credit unions or who work at small credit unions, appreciate the opportunity to ask questions of executives from $100 million credit unions. They can ask things they would not normally ask, or would not feel comfortable just walking up and asking.
"One of the strengths of the credit union industry is sharing ideas," he added.
