by
Catalyst Corporate | Sep 05, 2023
It’s no secret that financial institutions nationwide are experiencing liquidity challenges.
Fortunately, credit unions have access to numerous solutions to help solve these challenges. Catalyst helps credit unions mitigate liquidity challenges through tailored strategies.
1. Derivative Hedging Strategies
Derivative hedging strategies, specifically interest rate derivatives, are useful tools to help manage liquidity. Many credit unions use interest rate swaps to effectively convert fixed rate assets to floating rate assets or floating rate assets to fixed rate assets.
Because of this flexibility, many different scenarios are possible where two credit unions can help each other, depending on their balance sheet needs.
2. Subordinated Debt Issuance
With the most recent NCUA Subordinated Debt Rule, more credit unions have access to issuing subordinated debt than in the past. Depending on what makes the most strategic sense, credit unions could benefit from either issuing subordinated debt or investing in another credit union’s issuance.
Though subordinated debt carries a cost, the large influx of liquidity for issuing subordinated debt can offer many strategic benefits:
- Net worth rebalancing
- Growth and expansion
- Internal investment
- New and enhanced member benefits
3. Balance Sheet Consulting
Balance sheet consulting can help credit unions navigate unique economic conditions. In these conditions, it’s more important than ever to have tailored solutions for your specific situation. Consulting helps address short and long-term liquidity levels, earnings, and risk management.
Along with tailored solutions, credit unions should consider balance sheet experts who are experienced working with examiners and conducting educational sessions. One of the most important aspects of implementing liquidity solutions is board understanding and buy-in for the strategy. Catalyst’s consulting services include educating staff and the credit union’s board.
4. Portfolio Management
Outsourcing portfolio management can take a lot of the burden off credit unions when it comes to managing investments. When deciding what kind of portfolio management is right for your credit union, it’s important to look at existing investments as well as potential avenues of diversification. Many credit unions buy and sell loan participations, for example, but fewer credit unions utilize interest rate derivatives as a strategically beneficial counterbalance to participations.
On the flip side, a well-balanced portfolio should offer growth for the future, as well as opportunities to raise additional liquidity if it is needed. Credit unions have many ways to actively manage liquidity, even in today’s market conditions.
5. Risk Management
Liquidity management is a vital part of a larger risk management program. Credit union longevity requires a comprehensive risk management program. It is not necessarily difficult to be safe, but it is difficult to be safe while continuing to grow.
Credit unions have many risk management tools available but knowing which tool to apply and when is critical information.
6. Connect with Catalyst
Credit unions deserve long term solutions and strategies that are tailored to them. Each of these liquidity solutions has advantages and disadvantages. Catalyst presents the costs and benefits of each solution so your credit union understands its options.
Need liquidity solutions? Speak with an expert today.