Consumer Mortgage Portfolio Hedging with Interest Rate Swaps

Joseph Niehaus ()
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Joseph Niehaus: Jefferies | The CUFS Group | Credit Union Financial Services

Chapter Chapter 15 in Derivatives Applications in Asset Management, 2025, pp 251-263 from Springer

Abstract: Abstract This chapter presents a real-world application of interest rate swaps in consumer mortgage portfolio hedging, as implemented by a credit union. Facing a liability-sensitive balance sheet, the credit union uses pay-fixed swaps to reduce asset duration and align it with liability duration, thereby stabilizing equity during interest rate fluctuations. The case details the operational and accounting benefits of using the “last-of-layer” method under updated accounting standards, showcasing how derivatives can be strategically employed for balance sheet stability in community financial institutions.

Keywords: Asset-liability management; Duration mismatch; Interest rate swaps; Liability sensitivity; Swap accounting (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-86354-7_15

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DOI: 10.1007/978-3-031-86354-7_15

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