ALEXANDRIA, Va. (12/31/13)--New National Credit Union Administration regulations are not needed to ensure that credit unions will conduct robust stress tests and comprehensive capital planning, "since it is in their own best interests, and those of their members, to do so," the Credit Union National Association said in a comment letter to the agency.
Instead of finalizing a new rule, the NCUA should issue similar guidance and administer the guidance through the examination process, CUNA Deputy General Counsel Mary Dunn wrote.
The comment letter follows the October release of an NCUA proposal what would require federally insured credit unions with assets exceeding $10 billion to develop and maintain capital plans, and undergo annual stress tests.
The stress test requirements, drafted by the agency's Office of National Examinations and Supervision, would require impacted credit unions to conduct specific capital analyses to evaluate how changes in variables, parameters and inputs used by credit unions in their capital plans could affect their capital. Credit unions would also need to test how interest rate shocks of at least plus or minus 300 basis points would impact their net economic value.
"We do not believe that NCUA has sufficiently substantiated the need for a new regulation, given the financial performance of credit unions in general and the largest credit unions that would be covered by the rule in particular," Dunn wrote. Dunn in the letter also noted that the Dodd-Frank Act did not include NCUA in the list of agencies required to implement capital plan or stress testing regimes.
The issuance of guidance, as opposed to a new regulation, would remove credit union sanction concerns, would be less costly for credit unions and the agency to implement, and would provide additional flexibility for credit unions to develop their own models and plans, the CUNA letter said.
CUNA strongly agrees with the NCUA that capital planning, including stress testing under a range of economic scenarios, includes a highly significant set of tools that can benefit credit unions and the agency. However, CUNA states that the agency's objectives to protect the National Credit Union Share Insurance Fund can be achieved, and more cost effectively, through guidance that addresses issues raised in the proposal, and the examination process, rather than under a new rulemaking. With guidance, the agency can work with credit unions as opposed to issuing sanctions.
Additional CUNA recommendations include:
NCUA should not conduct stress tests, but should review stress test results that covered credit unions conduct; NCUA could use a third party to review the results;
Alternatively, NCUA should coordinate with the Federal Reserve Board to have the Fed conduct the reviews of the credit unions' tests;
NCUA should not subject covered credit unions to sanctions for failure to meet capital planning or stress test benchmarks;
NCUA should not establish a formal process for rejecting a credit union's capital plan; and
NCUA should not publicly disclose stress test results.
For the full CUNA comment letter, use the resource link.