Insights from Catalyst

Credit unions are an essential part of the financial services sector, serving millions of people around the world. Therefore, it is crucial they operate with the highest level of accuracy to make sound business decisions and provide the best possible services to their members.

As 2023 unfolds, credit unions remain focused on expansion and growth, even though liquidity has tightened, and share growth has slowed. While near-term growth may be difficult to achieve, market indications suggest that share growth will rebound later in 2023 or early 2024.

Since the Fed began increasing the fed funds rate 11 months ago, credit unions across the country have been heavily impacted by the rapid ascent of interest rates. Credit unions experienced some benefits to the rise in rates, but challenges emerged as well. Therefore, it is no surprise that interest rate risk (IRR) tops the list of NCUA’s 2023 Supervisory Priorities.

Investing in subordinated debt may offer an attractive yielding asset for your credit union’s balance sheet. Prior to investing in subordinated debt, however, it is important to perform thorough due diligence. Five key areas can help your subordinated debt investment analysis: growth trends, loan quality, earnings capacity, liquidity and planned use of the funds.

Over the second quarter of 2022, interest rate risk has seen pronounced movement, with many credit unions concerned about the impact on the NEV Supervisory Test. The 0.75% increase in the Fed Funds Target Rate at the June Federal Open Market Committee meeting, due to a hot CPI print, came to the markets somewhat unexpectedly (another followed in July).