CFO Summer Checklist

By John G. Nilles, CFA, Chief Financial Officer, Retail Employees CU
With the Memorial holiday just weeks away, you may want to cover a few bases before heading off on the family vacation. The precipitous drop in the bond market this past month might be a precursor for a long and hot summer.

 
 

With the Memorial holiday just weeks away, you may want to cover a few bases before heading off on the family vacation. The precipitous drop in the bond market this past month might be a precursor for a long and hot summer.

  1. Update your Investment Policy Statement. Many Credit Union investment policy statements are too specific and cumbersome regarding the documentation of individual security purchases. Look for documentation requirement overkill that is outside the requirements of 703. The last thing you need is to be written up by an examiner because you forgot to update one of three specific risk tests that weren’t being used in the first place. Consider enhancing your discussion of overall total portfolio and balance sheet measurements regarding liquidity risk, credit risk, interest rate risk and option (contraction and extension) risk. Integrate the use of externally generated reports that relate back to your policy guidelines. A decent bond accounting system should provide the required rate shock tests and portfolio duration metrics that insure independence and objectivity. If it doesn’t, go shopping for an upgrade.
  2. Review and update your liquidity lines. Besides having a credit line with your local Corporate credit union, do you have established reverse repo lines with local banks and broker dealers? Many times Corporates are not the best price on collateralized borrowings. Do these lines total at least as much as your deposits have grown over the past three years? Are you a member of the FHLB? Access to term funding is the advantage here versus other providers. Maybe the time to apply for application for membership is before you need liquidity.
  3. Identify securities with the most extension risk. Remember that CMO you bought last summer when you were stretching for yield? Maybe now would be a good time to ask your broker for an update on current prepayment speeds. Quantify the potential extension risk on all of your non-PAC CMOs and consider selling those securities that would rack up the most damage. Doing otherwise will keep your portfolio in the underperformance doldrums for this and in the next interest rate cycle.
  4. Hire a summer intern. Do your investment files need organizing? Have you been putting off some Excel spreadsheet work for a rainy day? Here is a way for you to receive extra help while the best and the brightest are merely afforded some resume building and a letter of recommendation. Many interns are willing to work for free. Call your local college or University and contact the Chairperson of the Finance or Accounting Department. Tell him/her what you are looking for in a candidate and the Professor will be glad to provide you with plenty of qualified and eager workers. It’s also a great way to develop new talent for your department with minimal cost or risk.
 

 

 

April 26, 2004


Comments

 
 
 
  • Great insight!
    Anonymous
     
     
     
  • Great insight!
    Anonymous
     
     
     
  • Great insight!
    Anonymous
     
     
     
  • Very prescient and insightful!
    Anonymous