CUNA Slams NCUA Rate Risk Proposal
CUNA contends that the NCUA’s proposed rule mandating that most credit unions have an interest rate risk policy isn’t needed because most credit unions have such plans in place while NAFCU just wants the proposal tweaked a bit.
CUNA said the proposal would invite "micromanagement from agency examiners," and that the agency already has adequate means to ensure that credit unions maintain these kinds of policies
The trade association also expressed strong objections to tying the existence of interest rate risk policies to a credit union’s NCUSIF coverage.
CUNA Deputy General Counsel Mary Mitchell Dunn wrote that such a step is "punitive and unnecessary" as well as "inappropriate and unwarranted."
She contended that because the agency lets its examiners evaluate the policies established by credit unions, the process is too subjective, and she expressed concern that examiners would use guidance in the rule as a checklist.
Under the proposed rule, federally insured credit unions with assets $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 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.
NAFCU Associate Director of Regulatory Affairs Tessema Tefferi wrote that the rule and appendix are "appropriate and could prove useful to credit unions."
However, in his comment letter he suggested that credit unions should have more than three months from the implementation date to comply.
He also noted that it would be "both effective and less costly to implement the requirements of the proposed rule if the NCUA allows credit unions to rely on third-party models in establishing their own."
Tefferi added that the agency should exclude from its calculation of first-mortgage loans those that reset in five years or less and also suggested that the agency’s assessments of credit union policies are "objective" and respect the credit union’s policy decisions.
NASCUS Senior Vice President Brian Knight urged the agency to clarify what risk-planning requirements smaller credit unions need to comply with. He also suggested that the agency add a provision allowing state-charted credit unions deemed in compliance with a state-specific risk requirement be deemed in compliance with the NCUA rule once the NCUA determines that a state rule adequately protects the NCUSIF.
He also recommended that the agency better monitor credit unions’ exposure to risk by requiring more information on investments, loans, deposits and liabilities in call reports.
Net Worth Definition
CUNA, NAFCU and NASCUS all took issue with parts of an NCUA proposal to change the definition of net worth to let assistance from the agency to a troubled credit union or a credit union acquiring a troubled credit union to count as regulatory net worth.
CUNA and NASCUS both expressed concern about a provision in the proposed rule, which was the result of legislation passed by Congress late last year, to deduct "bargain purchase gain" in certain credit union mergers from regulatory net worth. The trade associations want the provision, which refers to a gain on financial assets acquired for less than fair market value, to be studied more by the agency and subject to a separate proposed rule.
CUNA, in a letter by Senior Assistant General Counsel Michael Edwards, and NAFCU, in a comment letter from Associate Director of Regulatory Affairs Tessema Tefferi, both praised the provision, clarifying that the equity ratio of the NCUSIF will be based solely on the fund’s financial statements.
NASCUS’ Senior Vice President Brian Knight recommended the agency amend the rule to incorporate the new definition of net worth as it applies to certain definitions of allowable amounts of member business loans that a credit union can make.
Tefferi recommended that the agency clarify that its definition of allowable assistance from the NCUA applies in cases involving a merger and when a merger isn’t contemplated. He also urged the agency to clarify that such assistance from the NCUA counts toward the definition of net worth in all cases.
NCUA on Mutual Funds
Federal credit unions can sell their loans, with certain restrictions, to mutual funds, the NCUA said in a legal opinion letter.
NCUA Associate General Counsel Hattie Ulan wrote that the sales must be in accordance with the credit union board’s written sales policy and must be approved by the credit union’s board or investment committee.
Also, the credit union must keep a copy of the agreement and a schedule of eligible obligations.
Ulan wrote the opinion to attorney Guy Messick, who specifically asked about whether federal credit unions can sell loans to registered mutual funds.
NCUA Bans ALPS COO
Vicki Lynn Weidenhof, the former chief operating officer at ALPS FCU in Sitka, Alaska, has been banned by the NCUA from participating in the affairs of a federally insured financial institution after she pleaded guilty to a felony charge of "thrift and credit union theft, embezzlement and misapplication by a credit union officer."
Violating prohibition orders is a felony offense and punishable by imprisonment and a fine of up to $1 million.
Weidenhof was sentenced to two years in jail followed by five years of supervised release. She was also ordered to pay $187,348 in restitution.
According to prosecutors, Weidenhof took money from the credit union and deposited it in her account and the accounts of several other people.