A new interest-rate study on the credit union industry published last week by the Federal Reserve Bank of Cleveland reveals some interesting findings and opportunities that credit union leaders can be aware of as they navigate 2024 and beyond.
In “Interest Rate Risk at U.S. Credit Unions,” the report shows that while rising interest rates pose a risk to credit unions, their unique characteristics make them more resilient than banks.
However, continued monitoring and research are necessary. Rising interest rates still pose a risk, potentially leading to losses similar to those experienced by Silicon Valley Bank in 2023:
Nonetheless, credit unions overall appear more resilient to interest rate risk than banks. The study emphasizes that unrealized losses are potential losses if assets were sold immediately — not actual losses. The authors acknowledge limitations in their analysis, calling for further research.
Financial Health, Hypotheticals, and Larger CUs
A deeper dive indicates:
The report doesn’t specify the exact interest rate increase scenario used for its estimation. Understanding the assumed rate change would provide more context on the severity of the simulated stress test. The analysis focuses on the impact on net worth, which is the difference between an institution’s assets and liabilities. While a significant decline in net worth raises concerns, it’s not the sole indicator of financial stability.
Potential Future Opportunities for Credit Unions
Based on the report’s analysis and the broader financial landscape today, some potential future risks can be inferred. It gave further analysis on:
It’s important to note that these are just potential future risks, and the actual impact on the credit union industry will depend on various factors and how effectively they can adapt and mitigate these risks.
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