ABA comment on NCUA’s stress test proposal

by. Keith Leggett

In a comment letter to the the National Credit Union Administration (NCUA), the American Bankers Association (ABA) expressed its support for a proposal to subject a federally insured credit union (FICU) with over $10 billion in assets to annual stress testing, just as banks of similar size are required to do under the Dodd-Frank Act.

ABA noted that stress testing is an important and beneficial tool for both institutions and regulators in developing appropriate risk-management decisions and providing valuable information to both parties.

The proposal would require FICUs with assets of $10 billion or more to submit capital plans annually to NCUA. If the supervisory stress test shows that a covered FICU does not have the ability to maintain a stress test capital ratio of at least 5 percent under expected and stressed conditions throughout a nine-quarter stress test period, NCUA will require the credit union to take steps to enhance capital and/or may take other supervisory actions against the FICU.

However, ABA called for NCUA to revise the net ratio to 6 percent, which is “the mandated statutory level to be adequately capitalized”; at 5 percent, a FICU would be “undercapitalized.” This would ensure comparability with the bank stress test, which requires a bank to be adequately capitalized to pass the test.

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