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Asset Liability Management (ALM)

Asset liability management (ALM), also known as asset-liability (A-L) modeling, is a process used to manage business and financial objectives of your credit union by assessing and evaluating assets and liabilities in an integrated manner. The process is characterized by an ongoing review, modification, and revision (if necessary) of asset and liability management strategies so that income and price sensitivity to interest rate changes are confined within acceptable tolerance levels for your credit union.

Why is ALM Important?

NCUA implemented a rule (NCUA 12-CU-11) in September 2012 that requires certain federally insured credit unions to adopt a written policy on interest-rate-risk (IRR) management and a program to implement it effectively. The rule provides guidelines for policies, while also providing flexibility since credit unions have different risk profiles. The requirements for this rule are based on your credit union’s assets and balance sheet structure. You are required to abide by this rule if your credit union’s assets exceed $50 million, as shown by your most recent 5300 Call Report filing or if your credit union’s assets are equal to or greater than $10 million, but do not exceed $50 million, and the sum of your first mortgage loans held and investments with maturities exceeding five years is equal to or greater than 100% of your net worth at quarter end.

How Can QuantyPhi Help Your Credit Union?

The experts at QuantyPhi know how to build ALM forecasts that pave the way for continuous, safe, forward progress. Our modeling techniques are time-tested, leading-edge practices that address all NCUA requirements. We can show you how to create models that keep risk exposure within acceptable limits while maximizing opportunity in both good times and bad.

ALM allows credit union leaders and regulators to better understand your credit union’s risk exposure. It enables you to identify and act upon performance opportunities and potential risk threats in both the short-term and long-term. Once areas of progress or concern are singled out, restructuring for optimal performance on both sides of the balance sheet can be implemented.

The information gained from modeling allows your credit union to determine whether your balance sheet can withstand unfavorable market conditions and stay the course. Modeling, or income simulation, is an ongoing process in which your credit union continuously seeks to understand your net risk position and the sources of that risk.

ALM training and education is important for your credit union. QuantyPhi’s goal is to help you understand the changes in your credit union’s financial statements as interest rates change so that you can adjust your risk exposure and avoid unpleasant surprises. Our experts will discuss measurements of interest rate risk with you, help you interpret ALM reports, show you how to properly review ALM assumptions and how to use your credit union’s results to build better business strategies. QuantyPhi will also show you how to build an ALM policy that meets your credit union’s needs.

QuantyPhi uses your credit union’s ALM forecast to analyze your ALM process and provides benchmark reports and strategies to fine tune your balance sheet for more durable results in multiple interest rate environments. If your credit union does not have an ALM forecast, we can help with that too.

QuantyPhi
6262 South Lowell Place, Muskego, WI 53150
Phone: (414) 433-0176 | Fax: (414) 427-3700
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