Talk about starting off the year with a bang.

The NCUA Board is scheduled to tackle three issues of considerable importance to credit unions at its meeting next Thursday: interest rate risk, loan workouts and derivatives.

The board is scheduled to issue a final rule to mandate that certain federally insured credit unions have interest rate risk policies in place.

The agency said in its proposed rule that federally insured credit unions with assets of more than $50 million and smaller ones with potentially risky loan portfolios are required to have policies to evaluate the institution's interest rate risk exposure, set risk limits and test for interest rate shocks.

Federally insured credit unions with assets of $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.

In their comment letters, CUNA expressed concerns about the scope of the rule while NAFCU mostly praised it.

CUNA wrote that it would “invite micromanagement,'' by agency examiners. NAFCU wrote that the rule and appendix are “appropriate and could prove useful to credit unions.” NAFCU did urge the agency to let credit unions rely on third-party models in establishing their own.

Last week, the NCUA and other financial regulators issued an advisory letter recommending ways for financial institutions to test how well they are prepared for shifts in interest rates.

The NCUA Board is also scheduled to issue a proposed rule on loan workouts, non-accrual policy and troubled debt restructuring.

The agency requires credit unions to track modified mortgages as delinquent loans for six months even if borrowers had been making their payments on time and keeping the modified loans current.

Credit unions have complained that this disadvantages the borrower with credit reporting agencies and makes the credit union appear as though it has more delinquent loans than it does.

NCUA Chairman Debbie Matz promised last October that the agency would review the policy and possibly come up with a new proposed rule.

She said in a statement to Credit Union Times that the agency is “seeking solutions that would better assist credit unions which are working diligently to provide members with alternatives to foreclosure. Of course, any solutions must be consistent with Generally Accepted Accounting Principles and NCUA's mission to protect credit union safety and soundness.”

The NCUA Board is also scheduled to issue an advanced notice of proposed rulemaking indicating its intent to issue a proposed rule on the use of derivatives.

The agency sought input last June on a proposal that would allow FCUs that demonstrate strong financial performance and show they have the staff expertise to make use of derivatives on a limited basis.

It now is seeking comment on whether to mandate that credit unions use third-party providers or let them do it themselves. FCUs couldn't trade in derivatives for purposes of speculation.

Currently the NCUA allows FCUs to trade in derivatives through pilot programs that the agency must preapprove.

The meeting is scheduled for 10 a.m. at the agency's headquarters in Alexandria, Va.

Instant Insights /

NCUA Board to Deal With Interest Rate Risk, Loan Workouts, Derivatives

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