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October 18, 2016

NCUA issues interest rate risk tool, guidance

NCUA on Monday released its interest rate risk exam tool in a Letter to Credit Unions stating that the agency will institute changes to its interest rate risk review procedures and adopt a standardized IRR measurement.

NCUA said supervisory changes will not take effect until Jan. 1, 2017.

"NAFCU and our members appreciate NCUA Board Chairman Rick Metsger and NCUA Board Member J. Mark McWatters' adopting NAFCU's recommendation to address interest rate risk on the exam side rather than through greater regulation," said NAFCU Senior Regulatory Affairs Counsel Michael Emancipator. "However, we have started reviewing the details of the supervisory test to ensure that it does not unintentionally ensnare those credit unions that are prudently managing their IRR.

"In particular," he added, "we will continue to work with our members and the agency to establish a test that accurately and appropriately categorizes credit unions' exposure to interest rate risk."

NCUA said these changes are designed to "increase the agency's efficiency and effectiveness and to focus resources toward higher-risk credit unions while reducing the scope, attention, and time for lower-risk credit unions."

In the Letter to Credit Unions (No. 16-CU-08), NCUA said key changes to its interest rate risk supervision include:

  • development of the Interest Rate Risk Review Procedures Workbook;
  • updates to interest rate risk tolerance thresholds in the Net Economic Value Supervisory Test;
  • creation of an estimated net economic value tool for credit unions with total assets of $50 million or less; and
  • revision of the interest rate risk chapter in the Examiner's Guide.

Monday's Letter to Credit Unions also included a fact sheet, a revised examiners guide, the Interest Rate Risk Review Procedures Workbook and a guide to using the workbook.

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