Interest Rates Are A’Changin’: Interest Rate and Liquidity Risk Management

This article reviews the effect of rising interest rates on the market value of assets, an analysis of NCUA resources for evaluating and mitigating interest rate risk and liquidity issues which are 2019 supervisory priorities, and lessons learned from the failed taxi medallion credit unions.

One of the National Credit Union Administration’s (NCUA) primary areas of supervisory focus for 2019 is to examine for credit unions’ management of interest rate and liquidity risk in light of expected future interest rate increases by the Federal Reserve Board (Federal Reserve). See, Letter to Credit Unions 19-CU-01. Interest rate risk and its effect on asset liquidity is inherent in the operations of every financial institution and NCUA has provided tools to help credit unions understand the extent of their risk exposure and possibly mitigate it. The agency has also published various liquidity management resources, as well as helpful commentary on the asset concentration risk management failures of three credit unions that were heavily invested in taxi medallion loans.