By Lisa Hochgraf
Sunday in a workshop held before CUES' Directors Conference in Palm Desert, Calif., presenter Bill Goedken provided a great way to think about the value of modeling rate ramps and shocks as part of a credit union's asset/liability management program.
The Boeing 747 airplane is well known as a large airplane built several decades ago, before computers could be used to calculate so many things as they do now, said Goedken, CPA, CMA, president/CEO of Goedken Consulting Group, LLC, Sedalia, Colo.
When the 747 flies through turbulence, however, its great wings would flutter, waving up and down, continued Goedken, himself a pilot. In the lab, Boeing engineers pushed the wings to the limits of what they could take, pushing them down until they broke, and then up until they broke. The engineers were doing "super ultimate stress tests" to make sure passengers and crew would be safe in real flying conditions, he said.
Examiners are asking credit unions to do the same kinds of stress tests for ALM purposes. They want CUs to see what happens to their financial situation depending on the amount of "stress on their wings." So they recommend modeling "shocks"—rapid interest rate changes—as well as "ramps"—slower rates of change.
So when you're thinking about your credit union facing interest rate changes of a particular nature, think 747. "Are you going to be in that turbulence all the time? No," Goedken said. But if you can survive a heavy stress test, hopefully you can survive a little bumpy air.
Lisa Hochgraf is a CUES editor.
CUES and CUES Director members, download "ALM Essentials," a free ALM white paper by Goedken. Non-members can read an executive summary.
