Many Not In Compliance With Rules On Analyzing Non-Maturity Deposits

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Two years after an NCUA letter directed them to do so, many credit unions still aren't in compliance in analyzing their non-maturity deposits or properly modeling interest-rate and liquidity risk.

Officials with WesCorp here-which will host a webcast on related issues on Aug. 16 at 11 a.m. PDT-said that an analysis of non-maturity shares- including share drafts, regular shares and non-indexed money market accounts-is critical.

"For most credit unions, these are a large portion of the liability side, and they are how the credit unions are funding long-term investments. So, it is important to get it right, or as close to right as possible," said Jeremy Calva, WesCorp's director of investment operations. Calva will participate in the webcast, which centers on NCUA Letter 03-Cu-11, as will Brad Cunningham, senior interest rate risk consultant with WesCorp.

Cunningham said the vast majority of the CUs WesCorp has analyzed in the past 18 months are overstating their risk position. In many cases, this causes credit unions to decline to take on more risk and instead stockpile cash -which costs them the opportunity to make more money.

The two presenters said the webcast is designed to show there is no one answer for all CUs when it comes to asset/liability management. They will walk through a sample report that WesCorp uses to show what the corporate can do for a credit union. According to Cunningham, balance sheets are put together on a historical cost basis, and mostly consist of loans to members and investments. What is needed, he said, is a market-value perspective that weighs assets versus liabilities.

"Going through that exercise gives a good idea of long-term risk in the balance sheet, but does not give a good picture of short-term risk." To answer the second part, he said, WesCorp sets forth several "what-if" scenarios based on changing interest rates.

CUJ Resources

To join the Webcast, go to the WesCorp Website at www.wescorp.org and click on the icon marked "Webcast Aug 16." It is free, though registration is required. Jeremy Calva said questions can be sent to him in advance at jcalva wescorp.org.

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