Stress tests, contingency plans on heavy NCUA agenda

A plan to require yearly stress tests at credit unions with assets exceeding $10 billion, and a final rule on liquidity contingency plans, are two of the higher profile items on the National Credit Union Administration’s October open board meeting agenda.

NCUA Debbie Matz last month said the agency’s Office of National Examinations and Supervision was drafting a stress test requirement. Stress testing of federally insured credit unions with state charters would be conducted in consultation with the state regulator, she said. The shocks used in the stress tests, she added, would be based on scenarios issued annually by the Federal Reserve, with adjustments for differences between banks and credit unions.

Matz said the stress test results may be made public–but the jury was still out on that.  She noted that public disclosure would enhance transparency to members.  However, she acknowledged that results could also be misinterpreted and lead to inaccurate conclusions about a credit union’s current stability.

Credit Union National Association President/CEO Bill Cheney last month said CUNA doesn’t take issue with the NCUA taking appropriate steps to protect the federal share insurance fund in the interests of all credit unions that it insures. But CUNA is pondering, he added, whether “whether this sort of approach is necessary for credit unions, with their relatively low-risk profile, even for very large credit unions.” Any stress test proposal will receive “very careful scrutiny.”

The final version of the NCUA’s liquidity rule follows a proposed version that was introduced last fall. Under that proposed rule, credit unions with less than $10 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action. All federally insured credit unions with assets of $10 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations.

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