Insights from Catalyst

Since the Fed began increasing the fed funds rate 11 months ago, credit unions across the country have been heavily impacted by the rapid ascent of interest rates. Credit unions experienced some benefits to the rise in rates, but challenges emerged as well. Therefore, it is no surprise that interest rate risk (IRR) tops the list of NCUA’s 2023 Supervisory Priorities.

In the digital banking era, credit unions can’t afford to be reactive to members’ financial needs in everyday life, given the rising competition of fintechs and neobanks, as well as traditional bank competitors. And being proactive doesn’t mean spending a ton of money to build out a stand-alone digital credit union or reorganize the entire operation.

In the U.S. payments industry, 2023 will be a significant year for “instantaneous” payments, and Catalyst Corporate will be actively involved in supporting credit unions’ needs through it all.

Think about interest rates the last 10 years before 2022. The world spent almost the entire 2010s decade in a zero or near-zero rate environment. Fast forward to 2022, and the FOMC has raised rates more than 4% in less than 10 months. After witnessing record mortgage refinances throughout 2021 due to record low rates, in under a year, credit unions were then facing worst case scenarios.

Investing in subordinated debt may offer an attractive yielding asset for your credit union’s balance sheet. Prior to investing in subordinated debt, however, it is important to perform thorough due diligence. Five key areas can help your subordinated debt investment analysis: growth trends, loan quality, earnings capacity, liquidity and planned use of the funds.