There are a number of acceptable methods for measuring IRR

Submitted by sevans on Tue, 01/06/2015 - 3:42pm

The IRR management or ALM policy should express IRR measures and limits in terms of gap, earnings (i.e., net income “I], net interest income [NII]), net worth (e.g., mortgage portfolio shock, investment portfolio shock, change in NEV) or a combination of these. For all but the smallest or simplest credit unions, management should establish quantitative IRR measures to alert the credit union of the existence of unacceptable IRR exposure.

Overall, successful ALM programs encompass the following practices:

  • Identifying goals and objectives;
  • Developing strategies;
  • Creating polices and procedures;
  • Managing product offerings and pricing;
  • Identifying, measuring, monitoring, and controlling exposures to risk;
  • Generating adequate income and net worth over varying economic conditions; and
  • Maintaining financial flexibility.