Navigating the New Era of Volatility - How credit union CFOs can lead their balance sheets to stability and optimized performance
The
two-year Treasury yield moved from 0.27% to 4.40% in just fifteen months
between October 2021 and January 2023. The impact was immediate and widespread.
Industry-wide unrealized losses peaked at $41 billion. Liquidity ratios dropped
from 18.4% to 11.5%, well below the decade average. Return on assets fell from
68 basis points in 2023 to 63 in 2024. Delinquencies hit 98 basis points by
year end, with credit card delinquencies above 200 basis points.
Credit
unions weathered the storm, but this does not mean they were proactively
managing the problem. The consequences are still being felt today. In most
cases, the rate cycle moved faster than credit unions could respond, given
their tools and processes, and the result is compressed margins, decreased
liquidity and a significant and steady increase in M&A.
This
environment has made the CFO role more consequential than ever. In an era of
persistent volatility, balance sheet management is the difference between an
institution that protects its members and grows, and one that loses control of
its future. The lessons of Silicon Valley Bank and First Republic, though
banks, are revealing: these failures were driven by balance sheet misalignment
accumulating faster than these institutions could measure it. Credit unions
face the same structural challenge with even fewer resources.
CFOs
can take three actions to protect their institutions, maintain margins, and
position for this oncoming era of ever-deepening volatility.
Build
independent interest rate risk visibility
Too
many credit unions still rely on quarterly outsourced ALM reports to understand
their rate exposure. Today, by the time a consultant delivers their analysis,
the rate environment has already shifted.
Credit
unions need the ability to model their own interest rate risk in-house. That
means understanding what happens to Economic Value of Equity (EVE) and Net
Interest Income (NII) under stress scenarios before making balance sheet
decisions, not after. It also means not relying on brokers, who have their own
inventory to move, to frame the risk picture for you.
The
$22 billion in unrealized losses sitting on credit union balance sheets as of
Q3 2024 did not appear overnight. It accumulated through thousands of
individual purchase decisions made without full visibility into portfolio-level
rate exposure, dragging balance sheet flexibility.
Conduct real-time pre-purchase analysis that accounts for portfolio impact
Every
security purchase and loan participation is a balance sheet decision, not just
a yield decision. CFOs who treat it this way protect their institutions from
the kind of invisible risk accumulation that trapped so many credit unions in
the last cycle.
When a
credit union evaluates a security or loan participation, the standard approach
is to assess it on standalone yield; that is, if the return meets the threshold,
it is a buy. But a bond that looks attractive in isolation might concentrate
your portfolio in a way that amplifies your EVE sensitivity or duration risk. A
CFO should be asking and receiving immediate answers to questions such as: if rates
move 200 basis points in either direction after I add this position, what
happens to my earnings and my economic value?
Evaluate
M&A risk, whether you are acquiring or hope not to be acquired
Credit
union consolidation continued at a steady but elevated pace in 2025, with 157
mergers approved by the NCUA. But many of these acquisitions were not
necessarily driven by desire to merge; nearly half of merging credit unions in
the first half of 2025 reported negative return on assets. Protecting liquidity
ratios and improving return on assets with the above tools can avoid forced
M&A.
On the
other side of the table, credit unions acquiring distressed institutions or
banks (16 bank acquisitions in 2025 alone, near the record pace of 22 in 2024)
face a different problem. CFOs must carefully evaluate how the two balance
sheets fit together from a risk perspective (i.e., interest rate risk,
liquidity, concentrations) and if risks do emerge, they must consider
appropriate mitigation strategies like swaps, portfolio sales or repositioning
rather than writing off the M&A opportunity altogether. It is vital that
this analysis is done proactively. Too often, risks are identified only after
the merger is under way. Strong pre-merger analysis ensures the deal
strengthens the balance sheet rather than introducing unintended risk, such as
commercial loan concentrations, different funding structures or unprecedented
rate exposure patterns. Without modeling how the combined balance sheet behaves
under stress, an acquisition that looks accretive on paper can introduce risk
that takes years to unwind.
While volatility creates vulnerabilities, it also creates opportunities to capture margin, improve pricing and strengthen long term resilience, but only if that risk is evaluated effectively and acted upon quickly and confidently. Modern balance sheet strategies, powered by real time data and deeper analytics, enable credit unions to strengthen resilience and reduce unnecessary risk.
About
Author:
Daniel Ahn is the CEO & Co-founder of Delfi, a fintech company specializing in AI-powered financial risk management and portfolio optimization for financial institutions.
Daniel Ahn is the CEO & Co-founder of Delfi, a fintech company specializing in AI-powered financial risk management and portfolio optimization for financial institutions.