The NCUA’s new interest rate risk rule is reviewed in the agency’s third installment of its YouTube economic update series.
In addition to key economic indicators that point to a recovering national economy, NCUA Chief Economist John Worth and J. Owen Cole Jr., director of Capital Markets in NCUA’s Office of Examination and Insurance, review the IRR rule that takes effect in September in the video posted March 28.
To comply with the new regulation, certain credit unions must create a written policy to address IRR management, as well as an effective IRR program for successful asset liability management.
The rule will affect credit unions with more than $50 million in assets, which represents 45% of all federally insured credit unions.
“The impetus for this rule really has much to do with the evolution of risk in credit union balance sheets in the last 10 or 15 years,” Cole said.
“Credit union exposure to residential mortgage lending funded by fairly short-term liabilities has grown and become more pronounced over time. And so, the (NCUA Board) felt this is a particularly good time to address the need for managing that important risk very carefully through a formal written policy, which is essentially what the rule requires,” Cole said.