Adequacy of Data Inputs

In addition to capturing account balances, credit unions with complex balance sheets should use measurement systems that adequately capture the embedded market risk of all material balance sheet activity. In the initial setup of an IRR measurement system, the credit union will make critical decisions regarding a number of variables. Most measurement models allow for the input of the following contractual terms:

  • Current balance

  • Contractual maturities

  • Principal and interest payments and frequencies

  • Coupon rates and repricing frequencies

  • Contractual caps and floors

  • Contractual optionality (such as security or borrowing calls)

When reviewing the system’s input process, examiners should focus on the procedures for inputting and reconciling system data, categorizing and aggregating account data, ensuring the completeness of account data, and assessing the effectiveness of internal controls and independent reviews.

In addition to capturing account balances, credit unions with complex balance sheets should use measurement systems that adequately capture the embedded market risk of all material on- and off-balance-sheet activity.

Last updated on December 06, 2024