ALEXANDRIA, Va.—Although credit unions were not included inDodd-Frank Act provisions that mandate stress testing of banks withmore than $10 billion in assets, the NCUA Board on Thursdayapproved a proposed rule that would require the same of credit unions.

The rule would also require credit unions of the same size todevelop and maintain capital plans.

Also from NCUA Board: New Final Liquidity Rule Approved

Board Chairman Debbie Matz said during the meeting it didn'tmake sense not to require stress testing of the system's fourlargest credit unions. Matz even said the NCUA was concerned aboutthe lack of stress testing currently conducted at theinstitutions.

At issue, the board chairman said, is the credit unions' sizecompared to the share insurance fund. As of June 30, 2013, theassets of the four credit unions stood at $108.5 billion, nearly 10times the size of the NCUSIF, which had $11.2 billion in equity.Cushioning the NCUSIF against losses at the credit unions was anaggregate net worth of $10.8 billion.

If the rule is finalized as written, the NCUA would conductstress tests on the large credit unions based on Sept. 30 financialdata. The tests would be based on those developed by three bankingregulators: the Federal Reserve, the FDIC and the Office of theComptroller of the Currency.

The rule proposes that those large credit unions must maintain astress test capital ratio of at least 5%, which is higher than the4% minimum leverage ratio required of banks. The 1% differenceaccounts for the fact that credit unions can't raise capital in theform of stockholder equity. Raising capital through retainedearnings could be especially difficult in times of financialstress, the NCUA said in the memo.

Results of the tests may or may not be made public. Matz saidthe board “punted on the decision” and is seeking comment from theindustry on the matter.

Jim Blaine, president/CEO of the $27 billion State Employees'Credit Union of Raleigh, N.C., previously told Credit Union Times he supports theNCUA making the results of the stress tests public. SECU is one ofthe four credit unions affected by the proposed rule.

The other three credit unions with assets more than $10 billioninclude the $54 billion Navy Federal Credit Union in Vienna, Va.,the $16 billion Pentagon Federal Credit Union in Alexandria, Va.,and the $12 billion BECU in Tukwila, Wash.

According to Scott Hunt, director of the Office of NationalExaminations at the NCUA, the cost for the NCUA to conduct thetests would be $1 million or less per credit union to establish theprogram and approximately $500,000 per year for each additionalannual test.

Hunt said when presenting the proposed rule to the board thatthe NCUA would outsource the actual stress testing, and wouldsolicit competitive vendor bids would could lower thoseestimates.

In response to a question from Board Member Michael Fryzel, Huntsaid the costs could increase if additional credit unions cross the$10 billion threshold.

SchoolsFirst Federal Credit Union in Santa Ana, Calif., reported$9.8 billion in assets in its latest data on the NCUA'swebsite.