The Evaluation of Credit Union Non-Maturity Deposits

Sat Sep 01 16:24:38 EDT 2001
By Dr. James Jordan with former NERA Associate Director Dr. David Ellis

NERA was asked by the National Credit Union Administration (NCUA) to evaluate the available methods for valuing the non-maturity deposits (NMDs) of individual credit unions. The final report contains a comprehensive review of the literature on valuing NMDs. It provides a conceptual evaluation of alternative methods, with an analysis of the costs and benefits of these methods. The study discusses implementation issues for NCUA and credit unions, and provides recommendations for the most suitable valuation approaches to meet NCUA and credit union needs. The study proposes effective maturities that may reasonably be used for credit union deposits where the cash flows are not explicitly modeled by the credit union. The study proposes a method to value these shares, and discusses the appropriate discount rate for these funds.

NCUA is presently considering whether to use the study to prepare examiner guidance on the appropriate treatment of these instruments in the assessment of interest rate risk.