On-Site Coverage: NCUA Unveils Requirements for CU Interest Rate Risk Policies
ALEXANDRIA, Va. — Federally insured credit unions with assets of more than $50 million and smaller ones with potentially risky loan portfolios would have to have policies to evaluate the institution’s interest rate risk exposure, set risk limits and test interest rate shocks.
Those are among the provisions of the policy that the NCUA Board unanimously sent out for a 60-day comment period at today’s meeting.
Federally insured credit unions with assets from $10 million to $50 million would have to comply if they hold first mortgages and investments with maturities greater than five years that are equal to or greater than 100% of their net worth.
These written policies would have to: identify people and committees responsible for reviewing the interest rate exposure; mandate appropriate actions to ensure that executives manage interest rate risks in such a way that interest rate exposure is measured, monitored and controlled; state how often management must report to the board; set risk limits based on measures such as income simulation and asset valuation; choose tests to measure interest rate shocks; provide for periodic review of interest rate exposure; assess the impact of any new business ventures on the credit union’s interest rate risk; and provide an annual evaluation for the policy.
NCUA Chairman Debbie Matz said the proposed rule was needed because even though a considerable number of credit unions had heeded the agency’s warnings about making plans in this area, some had not done so. By having these policies in place, credit unions will be better prepared to adapt to the threats to their financial condition that could come when interest rates rise, which they will invariably do.