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.
- 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
- 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.
- 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.
- 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