WASHINGTON (3/29/11)--While acknowledging the importance of appropriate management of interest-rate risk, the Credit Union National Association (CUNA) is asking credit unions to weigh in on whether a recent regulatory proposal on risk management, which ties federal share insurance coverage to compliance, goes too far. The National Credit Union Administration (NCUA) is seeking comments through May 23 on the proposal. Issued at the March 17 open board meeting, the plan would require:
* A written policy on interest rate risk (IRR): and * An IRR management program.
Under the proposal, all federally insured credit unions would be required to have an IRR management program. There are asset-size and activity triggers for how the written IRR policy requirements would apply. (See resource link below for full details.) The proposal states that interest-rate risk is the: “Vulnerability of a credit union’s financial condition to adverse movement in market interest rates.” It also notes that credit unions have to address IRR from several sources which include re-pricing risk, yield curve risk, spread risk, basis risk and options risk. The proposal also states that the NCUA believes credit unions should have a written policy that expressly states the credit union’s IRR tolerance and an effective IRR program that “identifies, measures, monitors and controls IRR.” Such a program is an “essential component of safe and sound credit union operations.” However, CUNA notes in its Comment Call, the NCUA does not state clearly why the agency believes the recent proposal is needed at this time. As recently as January, the NCUA joined with other federal financial regulators to issue joint guidance on IRR management, and CUNA is not aware that the other regulators are currently developing further proposals like the NCUA’s recent action. The NCUA estimates that about 25% of credit unions, or around 800, will need to develop a written IRR policy, and surmises it will take about 16 hours for a credit union to comply. Among information CUNA asks credit unions to provide is an estimate of the burden the rule could pace on its staff. Use the resource link below to access the Comment Call.