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INTEREST RATE FOCUS: CUs CAN PREPARE
updated 07/08/14 10:46 AM
Three Scenarios to Watch for
The future of when and how fast interest rates will rise is impacting every credit union—and to some degree will determine the industry’s ability to meet larger objectives being plotted in the current strategic planning season.

“No one can predict the future of interest rates,” said Dwight Johnston, vice president and chief economist for the California and Nevada Credit Union Leagues. “You might get lucky and guess right, but there is no clear path, especially with rates already so low.”

Ready for Any Outcome
How does this uncertainty impact your credit union’s planning?

Johnston says that unless a credit union’s management and board have “some great insight” about rates and plan on only one outcome, they’ll have to address the impact on the balance sheet and earnings across multiple outcomes.

“You can focus on budget projections using a consensus forecast, but you’ll need knowledge of what happens under other scenarios to prepare for Plans B and C if the tide turns on rates,” he said.

While there's a consensus forecast for rates the rest of 2014 and through 2015, the arguments for an extreme outcome, whether high or low, have merit, Johnston said. He presents three possible rate scenarios using the 10-year Treasury bond.

“For the past few years the low-rate path was, quite frankly, an easy call to make. You didn’t need to spend much time examining the impact of any other outcome,” he said. “That’s not the case in the coming months.”

Three Interest Rate Scenarios
Johnston gives the following simplified arguments for each interest-rate scenario on the 10-year U.S. Treasury bond so credit unions can plan appropriately (click on the accompanying chart). Credit unions can keep this guide in mind as the months ahead unfold:

  • Scenario 1 (low-rate forecast): The economies of Europe and China stumble, slowing down the U.S. recovery to stall speed. Deflation fears keep global interest rates at, or near, historic lows.
  • Scenario 2 (consensus forecast): The economy continues a slow but sustainable recovery, and interest rates begin a slow, steady climb. Stable inflation prevents any sharp increase in rates. The Federal Reserve does not tighten rates until late 2015.
  • Scenario 3 (high-rate forecast): The economy recovers faster than the Fed recognizes. Inflation expectations rise, and the Fed is perceived as behind the curve. The bond market revolts.

Click here for Dwight Johnston's complete interest-rate forecast commentary via the DJ's Economix webpage.

 
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CU DIRECT TO DONATE 20K TO CMN updated 12/16/14 11:03 AM
‘20 for 20’ Anniversary Campaign
CU Direct, the nation’s leading provider of lending, automotive, and strategic solutions for credit unions, is celebrating its 20th anniversary by holding a contest to donate $20,000 to one of the nation’s Children’s Miracle Network (CMN) hospitals.

NCUA MAY BE LIABLE FOR DATA BREACH updated 12/16/14 10:05 AM
Flash Drive with Member Info Lost
The National Credit Union Administration (NCUA) confirmed on Dec. 15 that a flash drive containing the personal information of Palm Springs FCU member was lost during a recent audit. The loss of data includes names, addresses, Social Security numbers, and account information.

PREPARE FOR HEALTH CARE REQUIREMENTS updated 12/16/14 09:42 AM
Also, Digital Media and Marketing
Federal health care law requirements, creating a quick digital message, and the marriage of innovation with marketing are all highlighted within the latest “Problem? Solved!” column in Credit Union Digest!

'IOLTA' BILL: A BIG WIN FOR MOVEMENT updated 12/15/14 10:36 AM
Two Credit Unions React
The Senate’s passage of H.R. 3468 on Thursday is big news for federally-insured credit unions in California and Nevada that serve attorney firms and other businesses, and could open the door to deepening current relationships and attracting new prospects.