ALEXANDRIA, Va. (4/25/14)--The National Credit Union Administration Thursday adopted a final rule on capital planning and stress testing for the largest credit unions. The final includes changes recommended by the Credit Union National Association, but CUNA said it still believes the rule is unnecessary.
CUNA President/CEO Bill Cheney said after the agency's action, "We appreciate that the agency has adopted some changes that we suggested--such as not disclosing stress test results publicly--and has agreed to allow credit unions to apply, after three years, to have results of their own tests used for these purposes.
"However, CUNA did not support this proposal. While we acknowledge the utility of stress tests, we see no need for a rule. Further, the agency has not sufficiently substantiated a need for the use of third parties to conduct stress testing of covered credit unions, even for a finite period, rather than reviewing the assumptions and results of credit unions' own stress tests."
Cheney also highlighted that the cost of the program--which must be borne by all federally insured credit unions--is now up to $5 million for the first year, which CUNA believes is a high and unnecessary cost.
The rule, effective 30 days after publication in the Federal Register, applies to federally insured credit unions with assets of $10 billion or more. It passed by a vote of 2-1, with NCUA board member Michael Fryzel casting the dissenting vote. Board member Rick Metsger signaled a willingness to consider additional changes to the rule.
The agency plans to issue guidance on the final rule and CUNA is urging the agency to allow input from CUNA and the state leagues, as well as from affected credit unions, on the document before it is made final.
Under the rule, covered credit unions must submit capital plans annually to NCUA, and the plans must meet specific requirements reflecting risks and complexity of each covered credit union. In addition, affected credit unions must conduct capital plan assessments over each quarter of a three-year planning horizon. The final rule requires a minimum stress-test capital ratio of 5%.
The NCUA removed a specific requirement under the proposal to test the impact of interest rate shocks on the net economic value of the credit union. Instead, the final rule requires that covered credit unions perform reverse stress testing as part of their capital planning.
Further, the NCUA changed the final rule to strengthen the provisions regarding its consultation with the applicable state supervisory authorities, a change CUNA noted it supported.
For more on the final stress test rule, use the resource link to access the NCUA document.