WesCorp Overhauls Risk Management Tools

SAN DIMAS, Calif. – The historically low interest rate environment along with a rapid growth of fixed-rate mortgage portfolios and recent changes to the Federal Reserve Bank lending procedures, has lead WesCorp to expand the range of its liquidity and interest-rate risk management tools. The $23 billion corporate also reduced the cost of this funding, so as to provide the most competitive rates available to its members. WesCorp now offers both fixed- and floating-rate term advances out to a final maturity of 12 years, and is able to customize the terms to meet a member’s individual needs. Members can add caps and floors, call and put features, or just about any type of cash flow or interest-rate option. “It’s already well known that WesCorp structured certificates pay anywhere from 10 to 35 basis points more than a comparable Agency security,” said Bob Burrell, Executive Vice President and Chief Investment Officer. “We’ve now taken the infrastructure and risk management technology developed for our investment products and applied it to a wide range of credit products.” According to Burrell, there are two main reasons why WesCorp is at this time making the move to enhance the competitive position of its loan products. The first relates to the Federal Reserve Bank. As of January 9, 2003, the Fed restructured the operation of its discount window borrowings, making it easier for a credit union to borrow funds. However, at the same time, the Fed also raised the cost of these funds to 100 basis points above the fed funds rate. The second reason is the increase in credit union residential mortgage loan portfolios. “We think credit unions will want to match-fund some of these assets in order to mitigate some of the interest-rate risk,” said Burrell. He acknowledges that this is particularly critical since these assets are being booked with historically low coupon rates. When interest rates eventually rise, they will squeeze future net-interest margins on these assets. In addition to taking down fixed-rate advances, members can utilize WesCorp’s “fast track” derivative hedging program to lock-in today’s low rates on member share and certificate accounts.