Compliance: NCUA’s revised supervisory approach to IRR

October 24, 2016

The NCUA’s revised supervisory approach to interest rate risk is covered in a recent Letter to Credit Unions (16-CU-08). The new standardized approach is designed to increase focus and resources toward higher risk credit unions and minimizing the scope and time for credit unions of lower risk.

The interest rate risk supervisory review changes are effective Jan. 1. 

Key changes include:

  • A newly developed Interest Rate Risk Review Procedures workbook;
  • Updated tolerance thresholds (low, moderate, high, and extreme) in the Net Economic Value Supervisory Test;
  • A new tool that generates an estimated net economic value for credit unions with total assets of $50 million or less; and
  • A revised interest rate risk chapter in NCUA’s Examiner Guide.

The following resources released with the letter include:

  • IRR Review Procedures Workbook;
  • Guide to Using NCUA’s Interest Rate Risk Exam Procedures Workbook;
  • Revised Examiners Guide; and
  • Fact Sheet: Revised Interest Rate Risk Supervision

A key component of the revised examination and supervision process is an overhaul of the examination platform (AIRES questionnaires). The new interest rate risk workbook highlighted in the letter offers a peek at what the templates look like--at least for interest rate risk--as the agency revises its approach to supervision.

The Examiner’s Guide has been updated but only for the following review areas so far: Interest Rate Risk, Fidelity Bond Coverage, Risk-Focused Examination Program and Total Analysis Process, so until content is finalized for the review areas not listed above, existing supervisory guidance remains in effect and should be followed.

In addition to CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.