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CUNA sent a letter to the National Credit Union Administration (NCUA) Board Wednesday sharing concerns credit unions and Leagues have raised regarding the Net Economic Value (NEV) Supervisory Test.
“Credit unions across the country are experiencing declines in NEV Test ratings, often dropping from low or moderate to extreme risk, despite unchanged balance sheets,” the letter reads. “What is most concerning regarding this trend is that: (1) an extreme risk categorization results in automatic issuance of a Document of Resolution (DOR), and (2) the radical change in ratings—particularly given the lack of change of the balance sheet of many affected credit unions—raises questions on the accuracy of the NEV Test as an examination tool.”
CUNA shared its concerns that such results are not necessarily reflective of actual risk. Also, this trend will continue to accelerate, impacting more credit unions, given further rate increases expected by the Federal Reserve Board.
The NEV Test is an examination tool used to assess a credit union’s level of interest rate risk (IRR), which is categorized as low, moderate, high, or extreme. Examiners automatically issue a DOR to a credit union that receives the lowest risk rating of extreme. The extreme risk level category marks credit unions as categorically “unsafe and unsound” and “unacceptable,” requiring credit unions to take de-risking actions.
CUNA urges NCUA to change its policy that directs examiners to automatically issue a DOR for a credit union receiving an NEV Test rating of extreme, as it does not reflect the actual level of IRR.