July 7, 2010

The new interest rate risk advisory from the National Credit Union Administration formally lay out what have been best practices right along for such things as asset/liability model testing. Participants in the June 11 McGuire Performance Solutions Webinar, “ALM Model Verifications: Complying with 2010-1A IRR Regulatory Guidance and Uncovering Value” weighed in on some questions related to these new guidelines. Here are their responses.

How do you expect the January 2010 Interest Rate Risk Guidance will affect regulatory scrutiny of your ALM process? 

• Dramatically increase scrutiny – 15%
• Increase Scrutiny – 78%
• No effect – 4%
• Decrease Scrutiny – 2%
• Dramatically decrease scrutiny – 1%

How do you feel about mandating that vendors certify their ALM models? 

• Strongly agree – it is an important confidence builder – 76%
• Neutral – the forecasts prove model accuracy or not – 16%
• Strongly disagree – it is just another cost vendors will pass on - 8%

In my last ALM model validation, the quality of the technical verification was: 

• Excellent – all details reviewed and model issues identified – 32%
• Good – enough review detail to identify major model issues – 52%
• Poor – summary overview/boiler plate with few model issue insights – 16%

Management at my institution actively utilizes economic value calculations to manage our balance sheet and earnings performance:

• True – 58%
• False – 42%

How often does your institution undertake a formal ALM model validation?

• Annually – 26%
• Every two years – 20%
• Every three years – 11%
• Periodically, as needed – 43%