In 1992, the mortgage landscape was undergoing rapid change. With a nearly seven-percent drop in the bank rate over a two-year period, it was prescient of things to come.
[March/April 1992] Interest rates have been steadily dropping since May, 1990, when the bank rate was at 14.05 percent, to 7.49 percent in late March, 1992. With consumers more concerned about interest rate trends than in the past, borrowers are taking advantage of relatively low rates to lock in mortgages for longer terms. At the same time, savers are investing deposits in short-term instruments and waiting for rates to increase. As a result, many credit unions are faced with a growing asset-liability mismatch problem, and must seek ways to correct the imbalance if they don’t want their financial margins to shrink if and when rates start to rise. In addition to credit risk management, financial risk or treasury management strategies — including interest rate matching and liquidity and cash management — are essential to achieving stable financial performance and avoiding unnecessary risks. ◊