A successful derivatives program is not difficult to implement.
WesCorp can walk you through the entire process, which is a lot
less complicated than people realize. WesCorp not only offers the
derivative instruments for reducing the risk, but also can provide
balance sheet analysis and help explain why accounting issues are
not a problem.
Derivative hedging is particularly suited for credit unions that
meet these general guidelines:
- those that have sufficient liquidity, low, medium or high capital
ratios and no particular credit concentrations in their lending
portfolios, or
- those that wish to expand their product array either in their
loan portfolio or share offerings.
During the last several years, WesCorp has had tremendous success
working with auditors, regulators and member credit unions to successfully
implement derivative programs, focused on mitigating interest-rate
risk for our members. In particular, these members are allowing
for the retention of fixed interest rate loans—both real estate
and autos—the creation of generous and interest-rate sensitive
money market accounts, and most important, the ability to expand
market share of fixed interest-rate loans while avoiding too much
balance sheet interest-rate risk.
Read All About It
There are several articles outlining the benefits of derivative
hedging in WesCorp’s InsideRISK
magazine.
Hedging
with Derivatives, Part I
(Winter 2003, Vol. 3, No. 1)
Outlines how an interest-rate swap hedges the balance sheet and
how to measure whether this type of derivative continues to perform
as expected during its lifetime.
Hedging
with Derivatives, Part II
(Spring 2003, Vol. 3, No. 2)
Addresses the various board, regulatory and legal steps that a credit
union will need to take before executing a hedge.
Managing
the Margin
(Fall 2003, Vol. 3, No. 4)
With accounting hurdles now behind us, a credit union can now address
FAS 133 in a relatively simple fashion.
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