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As Interest Rates Climb, How Should Credit Unions Respond and Strategize?
Monday, March 26, 2018 6:55 AM

Debbie Rightmire

The Federal Reserve raised a key interest rate by a quarter-point at its Wednesday meeting, the sixth time in three years rates have gone up. Though interest rates remain at historic lows, Fed officials have indicated more rate increases are all but certain, pushing credit unions to re-evaluate both their lending and investment strategies.

Deborah L. Rightmire, vice president-asset/liability management at Cornerstone Credit Union League and at CU Resources Inc., told Credit Union Journal that regardless of the interest rate environment, if priced correctly, loans always produce a higher rate of return than investment portfolios.

“This will not change in a rising-rate environment,” she said. “However, some credit unions have placed significant portions of their loan portfolio in historically low-yielding loans or extended investment terms in an effort to enhance yield.”

As a result, they will have to wait for these assets to mature and re-price at the higher interest rate. “We also know that asset durations tend to lengthen in a rising rate environment—members hold onto their homes and autos longer to avoid refinancing at the new, higher rates,” Rightmire added. “In general, loan portfolios tend to re-price more slowly than investments.”

Read more on this story.