An effective IRR management program incorporates a process for measuring the credit union’s overall level of IRR exposure. The measurement system used should be appropriate to capture, identify, and quantify the major sources of IRR for all material on- and off-balance-sheet items to both earnings and net worth. The latter is particularly important for credit unions with significant holdings of intermediate and long-term instruments or instruments with embedded options because their market values can be particularly sensitive to changes in interest rates.
In other words, while all of a credit union’s activities should receive appropriate treatment, measurement systems should rigorously evaluate the major products and characteristics whose values are especially sensitive to rate changes.
Last updated October 11, 2016