CU2210. Inflation, the Fed, and Derivatives

With extreme uncertainty around the trajectory of inflation, and therefore corresponding Fed policy, managing interest rate risk is of ultimate importance. Following the NCUA’s relaxing of the derivative rule set in May of 2021, this tool is now much more readily accessible and in many instances is the most efficient and practical solution for risk mitigation. This session will explore the recent ruling, how tools such as interest rate swaps, caps and floors can mitigate risk using case studies, and finally the path one follows to establish an appropriately governed derivatives platform within a credit union.

Learning Objectives:

• Identify board/policy expectations related to permissible instruments, position and counterparty limits, and reporting processes
• Determine how to devise organizational structure to support the derivative platform as a whole
• Analyze formulation of various hedging strategies and their balance sheet and income statement impacts
• Assess real world hedging case studies recently performed by credit union peers
• Identify practical strategies that could be utilized in respective institutions