Becker Presses NCUA On Need For IRR Guidance

NAFCU President and CEO Fred Becker on Friday asked NCUA to give “more clear guidance” to examiners on how credit unions are to be examined by the agency for interest rate risk management.

In a comment letter to the agency, Becker said an increasing number of NAFCU members have expressed concerns about the way NCUA examiners are administering IRR management exams.

One concern that warrants immediate action, Becker said, is the substitution of the examiner’s opinion and judgment for management’s decisions regarding the shock model scenarios a credit union uses. Some NAFCU members have reported that “examiners are steering toward and effectively requiring” credit unions to use a specific shock model that relies on data from a 16-year-old industry study, he said. In that scenario, credit unions would have to cut back on their long-term lending and member business loans and shift to short-term investments, he noted.

NCUA should give credit unions the flexibility to determine appropriate testing and modeling based on industry-accepted standards and expert advice, Becker said. The agency’s guidance should also reflect the uniqueness of individual credit unions. To that end, models and testing methods used by examiners should be “commensurate with [the credit union’s] portfolio,” he said.

NCUA’s final rule on interest rate risk, which took effect last Sept. 30, requires federally insured credit unions to develop and adopt a written policy on IRR management and a program to implement that policy. Last August, NCUA released a letter to credit unions, 12-CU-11, which provides answers to frequently asked questions about the rule.

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