BENEFITS OF MARKET VALUE CALCULATIONS FOR CREDIT UNIONS

This research paper focuses on two different interest rate risk measures used by credit unions in Canada, described by regulatory standards as complementary and indispensable. These two measures pertain either sensitivity of market value or net interest income, caused by changes in interest rates. Whereas credit unions can relate to and understand the latter perspective, market value does not seem as relevant as credit unions hold assets and liabilities until maturity and are not exposed to changes in market value. We use data from three credit unions to explain the two measures and show that one can be expressed by the other, which in fact discredits the perceived complementary nature of both measures. Additionally, we further develop the concept of net interest income sensitivity to overcome the weaknesses of market value by employing a more realistic measurement of interest rate risk and a reduction of required capital which eventually would enable credit unions to operate more profitably.