April 25, 2014 – NCUA’s board, voting 2-1, with Board Member Michael Fryzel voting no, approved a final rule Thursday that will require the largest credit unions to obtain independent stress tests annually, action that NAFCU views not only as duplicative but unjustifiably costly for the entire industry.
“We have been arguing for less, not more, regulatory burden in our conversations with NCUA, other regulators and Congress,” said NAFCU Director of Regulatory Affairs Mike Coleman. “This final rule significantly ramps up current burdens and increases costs for all insured credit unions.”
The final rule applies to insured credit unions with $10 billion or more in assets. Stress tests will be performed annually for three years by independent modelers chosen by NCUA and will be paid for through the National Credit Union Share Insurance Fund; staff estimate the first year's testing won't exceed $5 million. After three years, the credit union will be able to apply to conduct its own tests in a manner approved and supervised by NCUA.The rule also requires covered credit unions to submit capital plans annually for NCUA approval.
One issue for comment was whether stress test results should be disclosed publicly; under today's final rule, they will not be for the first several years. When the rule enters the agency's three-year review cycle, however, "the Board reserves the right to take a separate action" on this issue.
Before voting no on today's final rule, Fryzel stated support for stress testing but said the rule still needs work. He noted requests from covered credit unions to have more time to review and recommend improvements, and he said as the agency and industry are not now working in "crisis mode," there is no reason not to take more time to get the rule right.
NAFCU, in previous comments, has noted that covered institutions already perform stress tests, and that they have every reason to do so. It recommended a less-costly alternative to today’s final stress-test requirement: periodic reviews of the assumptions and processes used by credit unions to verify their soundness and validity.
Today’s final rule takes effect 30 days after publication in the Federal Register; NCUA is seeking requests for bids to do the tests.