Derivative Hedging Services

Schedule a Derivatives MeetingMeeting your members’ needs, regardless of what is happening with interest rates, is critical to your long-term success.  However, when interest rates are rising, credit unions that add long-term mortgages or investments can bump up against policy limits, forcing business decisions of how best to move forward.

Managing risk exposure keeps your credit union safe but can also lead to missing out on great opportunities. At Catalyst, our goal is not only to help you succeed, but thrive well into the future.

Interest rate risk, while real, should not be a limiting factor for credit unions seeking to successfully grow and meet their member needs!  It would appear that state and federal examiners share the same opinion.  Therefore, the NCUA eased and approved a new derivatives rule that greatly reduced the barriers for entry.

Credit unions have long managed interest rate risk exposures through loan sales, loan participations, and term borrowings.  However, each of these strategies presented several drawbacks ranging from lower long-term earnings potential to net worth dilution.

Interest rate risk derivatives help alleviate many of these challenges:

  • Cost Efficient: Interest rate derivatives typically have a lower cost for the same term as term borrowings
  • Flexibility: Over-the-counter (OTC) derivatives can be customized to hedge your selected asset or liability, They can be easily liquidated if a hedged position changes.
  • Derivatives SnapshotPenalty Fee: OTC derivatives can be liquidated at fair market value and do not have prepayment penalties that are common with term advances.
  • Preserves Net Worth: With successful hedge accounting treatment, interest rate derivatives are kept off-balance sheet, which means they do not increase total assets and thus do not dilute net worth.
  • Maintains Liquidity: Liquidity risk is very real. Interest rate derivatives do not consume secondary liquidity sources to manage interest rate risk like using term borrowings will!