NCUA launched a new Web page in June to help credit unions better understand and prepare for changes in interest rates and related risks.
The Web page includes videos, charts showing trends that affect interest-rate risk (IRR), and links to NCUA regulations and letters to credit unions, interagency guidance, and best practice resources.
IRR refers to the vulnerability of a credit union’s financial condition to adverse movements in market interest rates. It’s a significant threat to the industry, says NCUA Chairman Debbie Matz.
“We’re in a very unusual rate environment,” she says. “The credit union system is faced with extraordinary IRR challenges. At the same time, there have been significant shift s in the composition of assets and liabilities during the past several years.
“In the event of a rapid change in interest rates, the result at some credit unions would be stressed earnings and the possibility of large declines in economic value,” Matz continues. “While we are aware that many credit unions are well positioned to manage this risk, there are others that have potentially excessive exposure to IRR that could result in losses to the entire system.”
In 2012, NCUA amended its federal share insurance regulations to require federally insured credit unions with assets of more than $50 million to develop and adopt a written policy on IRR management, and a program to implement that policy as part of their asset/liability management responsibilities.
Credit unions with less than $10 million in assets are exempt from the regulation.
Those with $10 million to $50 million in assets are subject to the requirements only if their first mortgages and investments with maturities of more than five years equal or exceed 100% of their net worth (NCUA Rules and Regulations, Section 741.3(b)(5) and Part 741, Appendix B).
The IRR resources Web page is available at ncua.gov, under “credit union resources and information.”