Hunt: NCUA stress-test proposal is more burden with little benefit

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Carrie Hunt

Dec. 31, 2013 – NAFCU strongly urged against splitting the credit union industry by asset size in a comment letter Monday to NCUA on a proposed capital planning and stress testing rule.

NCUA’s proposed rule would require stress testing for credit unions with more than $10 billion in assets.

“The health of the NCUSIF is essential for the credit union industry, and stress testing and capital planning are important tools for credit unions to assist in proper management,” wrote NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt. “However, the [proposed rule], if adopted, would do little to enhance the security of the NCUSIF yet would add additional regulation to credit unions.”
Hunt said NAFCU opposes the rule as drafted and urged against its adoption. “NAFCU is concerned about the potential impact of bifurcating the credit union industry through this rule, and the precedent it would set for future rulemakings,” she wrote.
Hunt recommended that NCUA conduct a cost-benefit analysis of the rule. She noted, for example, that currently only four credit unions would be subject to the proposed stress-testing requirement, and they already conduct their own tests. Hunt also questioned the need to set requirements for credit unions based on rules for banks from agencies such as FDIC and the Office of the Comptroller of the Currency. Credit unions’ unique structure and mission make regulatory parity unnecessary in this case, she noted.
Finally, Hunt said that if NCUA adopts the rule, the agency should allow credit unions to conduct their own stress testing and not require use of a third party.
Hunt also emphasized NAFCU’s opposition to the use of net economic value as a key metric.

“There is only a weak and theoretical correlation between current changes in NEV and future net worth, and its use is inconsistent with other regulatory regimes’ stress testing requirements,” she wrote. “To the extent the NCUA wants information on credit unions’ interest rate risk, it should seek this information as a part of the regular examination rather than as a part of its stress testing program.”

Related Links:
NAFCU letter