ALEXANDRIA, Va. (June 20, 2014) – Interest rate risk poses a significant threat to the credit union system, and the National Credit Union Administration today launched a new web resource page for credit unions to use to better understand and prepare for changes in interest rates and the risk those changes present.
The new page includes videos, charts showing trends that affect interest rate risk, and links to NCUA regulations and letters to credit unions, interagency guidance, and best practice resources. NCUA’s newest video about interest rate risk and the questions credit unions should answer is also posted on the resource page and NCUA’s YouTube channel.
NCUA Board Chairman Debbie Matz encouraged credit unions to take advantage of the agency’s new resource page as the credit union system moves into a new rate environment.
“We are in a very unusual rate environment,” Matz said. “The credit union system is faced with extraordinary interest rate risk challenges. At the same time, there have been significant shifts in the composition of assets and liabilities over the past several years.
“In the event of a rapid change in interest rates, the result at some credit unions would be stressed earnings and the possibility of large declines in economic value. While we are aware that many credit unions are well positioned to manage this risk, there are others that have potentially excessive exposure to interest rate risk that could result in losses to the entire system.”
“A critical emerging risk is the way credit unions are using their investment portfolios,” said NCUA Chief Economist John Worth. “Over the past five years, credit union’s long-term investments jumped as a share of assets. In a rising rate environment, long-term investments have the potential combined with other fixed-rate assets to anchor interest income at low levels even as interest costs move higher.”
NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the U.S. Government, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 97 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. At MyCreditUnion.gov and Pocket Cents, NCUA also educates the public on consumer protection and financial literacy issues..