CUNA and NAFCU say the NCUA's proposed stress test rule forcredit unions over $10 billion in assets is costly and unnecessaryconsidering the four largest credit unions in the nation alreadyconduct their own tests.

The credit unions affected would be the $54 billion Navy FederalCredit Union in Vienna, Va., the $27 billion State Employees'Credit Union of Raleigh, N.C., the $16 billion Pentagon FederalCredit Union in Alexandria, Va., and the $12 billion BECU inTukwila, Wash. The NCUA's stress tests would be based on Sept. 30financial data.

Under the rule, these credit unions would be required tomaintain a stress test capital ratio of at least 5% – higher thanthe 4% minimum leverage ratio required of banks since credit unionsare unable to raise capital in the form of stockholder equity.

“Navy Federal is aware that the NCUA is drafting a proposalrequiring credit unions exceeding $10B in assets to undergo annualstress tests. Navy Federal remains well-capitalized, and we will bemonitoring the progress of this proposal as it goes forward,” aNavy Federal spokesperson told Credit Union Times onThursday.

Jim Blaine, SECU president/CEO, recommended that the NCUArelinquish stress testing to the Fed.

“Required stress testing by SECU seemsappropriate. Consistent with the best practices of otherfederal regulators, we believe publication of stress test results,at least for SECU, is the best course. We feel ourmember-owners deserve to know the results. Much like CPAaudits,” Blaine said Thursday.

“NCUA should consider relinquishing the stress testing processof credit unions to the Federal Reserve, which is qualified toconduct the model results. This should save the remarkable $4million 'outsourcing' estimate NCUA quoted. Let's use the best– the Fed,” Blaine said.

Carrie Hunt, senior vice president of government affairs andgeneral counsel at NAFCU, said NAFCU has a “huge concern” over thecost of complying with the rule.

“Inevitably, we always run into this issue with NCUA in terms oflooking at cost,” she said.

“We don't think that we need this whole new stress testingregime,” she added.

Hunt said the four largest credit unions do their own stresstesting to have a well-run operation.

“We have huge questions and concerns with creating a newregulation at an enormous cost to the credit union – it's notnecessary,” she said.

CUNA is also against the proposed rule.

“The agency [NCUA] will be conducting the stress testing andit's going to cost, according to them, $4 million just in the firstyear to conduct this stress testing – that's $1 million for eachone of them,” said Mary Dunn, CUNA senior vice president and deputygeneral counsel on a CUNA conference call Monday.

“We think it's really unclear – where did this number come from?Why is it going to cost so much and why is it necessary that theagency actually be the entity that conducts the stress testing?”she added.

Peter Duffy, a managing director at Sandler O'Neill andPartners, said he is not surprised the NCUA would propose a stress test rule.

“We expected the stress testing and capital requirements forcredit unions to move toward a closer synch with community bank'sregulatory expectations. The business models and balance sheets oflarger credit unions and banks have evolved to be, according to theU.S Treasury's analysis (and our own) to be difficult todistinguish from each other,” Duffy told Credit UnionTimes.

“With some exceptions, the institutions are offering the samefinancial products to the same customers through similardistribution channels. The CUs with assets greater than $1 billionhave already begun to understand this and have been discussing thiswith us for the last five years. We have no reason to believe thatany agency would conduct testing simply for 'gotcha' purposes,” headded.

In an interview with Credit Union Times after the Oct. 24board meeting, NCUA Chairman Debbie Matz explained why large creditunions should be subject to the rule even though they are notincluded in the Dodd-Frank Act stress test requirement.

“Our share insurance fund is $11.7 billion, so there are fourcredit unions with assets over $10 billion. Three of those four arelarger than our share insurance fund,” she said.

“So it's a very significant risk to the fund and there's noreason why a credit union of $10 billion or more should not be heldto the same standard in terms of forward-looking testing that otherfinancial institutions are held to,” the NCUA Board chair said.