CECL requirements

As CECL requirements continue to evolve in 2019, examiners will inquire about credit unions’ efforts to prepare for the new accounting standard, and whether they have analyzed how CECL would alter the allowance for loan and lease losses funding needs.

The Financial Accounting Standards Board issued the new accounting standard in June 2016, introducing the current expected credit losses methodology for estimating allowances for credit losses. The standard becomes effective Jan. 1, 2022, for most credit unions.

CUNA called on NCUA to do more to prepare credit unions for CECL in a letter [PDF] to Chairman J. Mark McWatters. The letter echoes CUNA’s request during a June 2018 meeting that the agency increase its focus on implementation of CECL.

Information systems and assurance

As in previous years, NCUA will be carefully evaluating credit unions’ cybersecurity risk management practices. Examiners will continue conducting information security maturity assessments with the Automated Cybersecurity Examination Toolbox (ACET).

Developed in 2017, ACET mirrors the Federal Financial Institutions Examination Council’s Cybersecurity Assessment Tool, developed for voluntary use by credit unions and banks to identify their risks and determine their cybersecurity preparedness.

Examiners will use ACET to assess credit unions with more than $250 million in assets that have not previously received an assessment.

In addition, NCUA examiners will focus on the assessment of a credit union’s information technology risk management to ensure it effectively identifies, remediates, and controls inherent risks to appropriate residual risk levels, and oversight of service provider arrangements to ensure credit unions implement effective risk-based supply chain management.

NCUA chose these areas of focus as a result of historical examination analysis, emerging threat trends, and sample results of ACET maturity assessments to date.

Liquidity and interest-rate risk

Examiners will assess credit unions’ liquidity and interest-rate risk management to identify:

• The potential effects of rising interest rates on the market value of assets that affect changes to net worth and borrowing capacity.
• Member preference shifts to shares with more market sensitivity.
• Management’s ability to meet liquidity needs given the increased competitive pressures that affect share balances.

An effective liquidity and interest-rate risk management program is a key component of a credit union’s safety and soundness.

“The projected economic fluctuations in 2019 make this an increased area of emphasis,” according to the agency’s letter.

When rates rise, it puts pressure on credit unions to raise deposit rates to maintain deposit account volume. Enhanced mobile and internet banking applications and non-bank financial technology may also result in greater challenges to retain low cost core deposits compared to prior interest rate cycles.

Contact CUNA’s compliance team