ALEXANDRIA, Va. (10/31/14)--Responding to comments from credit unions, credit union leagues and the Credit Union National Association that interest-rate risk (IRR) should not be addressed in risk weightings in the risk-based capital (RBC) proposal, several officials at the National Credit Union Administration are seriously considering a separate IRR proposal. This approach would remove IRR from certain risk weights in the upcoming RBC proposal the agency is developing.
The IRR rule would supplement current supervisory IRR efforts and is intended to target credit unions with the heaviest exposure to IRR that might, under economic duress, become undercapitalized.
The agency received a record 2,056 comment letters on the RBC proposal, and many, including CUNA, disagreed with its approach to IRR. The proposal would have accounted for IRR through investment risk weights.
"By focusing exclusively on concentrations of longer-term assets, the proposal fails to account for how the maturity structure of liabilities can mitigate interest-rate risk. Further, it does not follow the general approach of Basel with respect to interest-rate risk," CUNA's May 28 comment letter pointed out.
The agency has preliminarily consulted with asset and liability management practitioners, registered investment advisers credit union derivatives practitioners and others prior to beginning the design of such a rule.
According to the NCUA, its staff is now in the process of producing a proposed RBC rule for eventual board review and potential action, which may be issued in in the coming months.
The American Association of Credit Union Leagues' (AACUL) Regulatory Advocacy and Compliance Advisory Committee met with NCUA officials Thursday to discuss credit union issues, including the RBC proposal. They also discussed examination concerns, NCUA's budget, NCUA's mission and concerns regarding the Consumer Financial Protection Bureau.
Those in attendance included: Pat Sowick, AACUL senior vice president of league relations; John Trull, director of regulatory advocacy, Northwest Credit Union Association; Greg Michlig, president/CEO, New Jersey Credit Union League; Paul Gentile, head of the Massachusetts, New Hampshire and Rhode Island credit union leagues; Ken Ross, executive vice president and chief operating officer, Michigan Credit Union League and Affiliates; NCUA Chair Debbie Matz; Patrick Smith, vice president of communications and regulatory affairs, Illinois Credit Union League; Scott Simpson, president/CEO, Utah Credit Union Association; Mary Dunn, CUNA deputy general counsel; and Patrick La Pine, president/CEO, League of Southeastern Credit Unions.