Sideways Rates, Liquidity Management, And Intensive Learning

Takeaways from ALM First’s Financial Institute.

 
 

Advanced liquidity management strategies, deposit structures, and other key trends affecting depository institutions were just a few of the topics discussed during ALM First’s Financial Institute this week, held at the Four Seasons Resort & Club in Dallas, Texas.   

The event, attended by more than 150 financial professionals, kicked off with an economic overview tailored to credit unions and banks. In addition to revisiting the market headwinds that most dramatically impacted institutions in fourth quarter 2018, presenters also discussed the Fed’s policy pivot toward a “patient” approach. 

The median participant forecast for 2019 is now zero rate hikes after the Fed doubled down on dovishness in March, according to Jason Haley, managing director of ALM First’s Investment Management Group. However, Haley emphasized the importance of financial institutions using a strong investment process rather than guessing on future Fed decisions or potential interest rate movements. 

“Rates can go up or down, but more often than not they go sideways,” says Haley. Referencing 10-year Treasury daily yield changes over the past twenty years, he showed attendees that these sideways rate movements have occurred nearly 80% of the time.   

While economic data has generally disappointed so far in 2019, consumers remain in a relatively strong position with household debt-to-income rates remaining at historically low levels. Haley also shared the latest data on inflation, wage growth, and housing affordability before diving into a potential U.S.-China agreement and LIBOR reform. 

A Timely Panel Discussion Focused on Liquidity

A panel discussion on liquidity and liquidity management followed Haley’s economic overview and included executives from three credit unions and one bank sharing their own institution’s strategies. 

Marito Domingo, chief credit & investment officer of First Tech Federal Credit Union ($12.2B, San Jose, CA) provided background on the credit union’s overall risk management process before sharing insight on specific liquidity policy metrics and how they work.  

CJ Presto, CFO of BCU ($3.5B, Vernon Hills, IL), explained some of the challenges of maintaining a high loan-to-share ratio, which averaged 108% and peaked at 115% last year. He also shared how BCU uses cash flow modeling and conservative targets to help successfully manage its liquidity needs. 

Keith Edwards, senior assistant vice president finance of Redstone Credit Union ($4.9B, Huntsville, AL) provided insight into the opposite end of the spectrum, with a loan-to-share ratio of 47.34%. Edwards discussed how his credit union considers both long- and short-term liquidity management and sets specific liquidity objectives, such as keeping the investment portfolio fully funded and holding mortgage production.

All three credit union panelists shared deposit structures that their institutions offer to incentivize new accounts and reward loyal members for maintaining their savings or checking accounts at the credit union. BCU’s Rainy Day Savings is popular with sub-prime and affluent members alike and encourages habitual savings. Redstone’s Brighter Day Savings account offers a whopping 5% rate on up to $2,500 and its adjustable rate certificate allows for a rate increase once every 12-months. First Tech’s Dividend Rewards Checking account pays up to 2% on the first $15,000 and the credit union offers a cash incentive for new accounts with direct deposit.

An Impactful Roundtable & Intensive Learning Tracks

During the opening day’s final general session, Brandon Michaels, CEO/President of JSC Federal Credit Union ($2.1B, Houston, TX) facilitated an interactive roundtable discussion on current trends affecting depository institutions. Attendees were challenged to consider their institution’s relevance and discussed timely trends in small groups, including identifying the competition and the use of artificial intelligence.

The balance of the day was spent in more customized sessions specifically designed for the three learning tracks offered: Funds Management, Fundamental, and Board. Within these three learning tracks, the 2019 ALM First Financial Institute offered attendees a choice of more than two dozen in-depth educational sessions based on their current skill level and interests. 

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March 28, 2019


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