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Derivative Hedging Services


The fundamental dichotomy of risk versus reward in balance sheet management is among the most critical challenges that credit unions face. Recently, the National Credit Union Administration authorized certain federal credit unions to enhance their interest-rate risk mitigation strategies by purchasing derivatives.

What are Interest rate derivatives?

Interest rate derivatives are financial contracts executed between two parties, designed to protect the balance sheet from exposure to changing interest rates. Derivatives have been used successfully for risk mitigation by financial institutions for more than 20 years.

While credit unions have had access to derivative instruments for the last decade, using them to hedge risk is unchartered territory for most. Catalyst Strategic Solutions' new Derivatives Hedging Services guide credit unions through the process of implementing a derivatives hedging program from start to finish. Services include:

  • An initial meeting to discuss credit union objectives
  • Board and management team education
  • Establishment of counterparty relationships and ISDA legal review
  • NCUA application and policy consulting
  • Calculation of risk to be mitigated, earnings impact, transactions strategies/structures/laddering formulation
  • Trade execution with counterparties
  • Credit analysis and daily pledged collateral management
  • Comprehensive ALM modeling with BancWare's Ambit ALM5 model for interest rate risk management and off balance sheet analysis
  • Compliance follow-up and on-going consultation.

Features & Benefits:

  • Derivative hedging can provide credit unions with the ability to hold a greater concentration of longer term higher yielding assets, most commonly mortgages, without the associated interest rate risk.
  • Hedging can help to stabilize credit unions’ cost of funds.
  • Derivatives are a viable alternative to either selling an asset or taking out a borrowing with minimal balance sheet impact.
  • Instruments may be used to hedge a mortgage pipeline.
  • Catalyst Strategic Solutions has the necessary experience and expertise to help credit unions launch a successful derivatives program, efficiently:
    • Advisors have deep experience with identifying and deploying strategies that optimize the performance of credit union assets while protecting their earnings streams and equity capital.
    • Catalyst Strategic Solutions has the systems and the expertise in place to assist credit unions with implementing a derivatives program.
    • Catalyst Corporate and its predecessor was an approved derivative vendor under NCUA’s investment pilot program.
    • Catalyst Corporate, the parent company, has managed the execution of derivative transactions for interest rate risk mitigation for 20 years.

For more information about the Derivative Hedging Services or any of the customized investment solutions offered by Catalyst Corporate and Catalyst Strategic Solutions, contact us at or call 800.301.6196.

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* Indicates a product or service provided by Catalyst Corporate Federal Credit Union