ALPHARETTA, Ga.–To address what one company said is a growing interest r ate risk threat that is going to start appearing in NCUA’s NEV tests as rates rise, a new Capital Market CD (CMCD) program has been introduced that has NCUA’s support.
“The problem facing credit unions is that as mortgages and other long-term assets have grown by over 82% since year-end 2017--$703.9 billion vs. $385.8 billion--long-term member shares & deposits have declined by 34%--$28.1 billion vs. $42.5 billion,” CU Capital Market Solutions said in a statement to CUToday.info. “The result is more interest rate risk in the system, which will be captured in the NCUA’s NEV Test and will show up in earnings as interest rates rise. The best option available today for CUs to reduce the IRR in their balance sheet is to increase the amount of non-callable, long-term, fixed-rate deposits.”
“The bottom line is that CU’s are lending longer and funding short. There isn’t any lengthening of liabilities,” said CU Capital Market Solutions.” “In a rising interest rate environment, that spells disaster.”
In April of 2021 the agency issued a legal opinion regarding the application of its share insurance regulations to the proposed structure of the CMCD program. More information can be found at www.ncua.gov/regulation-supervision/legal-opinions