NCUA Board Proposes Requiring Interest Rate Risk Management Programs, Issues Rules from Recent Legislation

March 18, 2011 —A new National Credit Union Administration (NCUA) proposed rule would require written interest rate risk (IRR) programs for federally insured credit unions (FICUs).

The proposed rule would exclude FICUs with less than $10 million in assets and FICUs between $10-50 million in assets with a percentage of first mortgages and investments greater than five years that is less than 100% of net worth.

After the rule is made final, NCUA will allow three months for credit unions to come into compliance. The proposal includes guidance to FICUs on how to establish an interest rate risk policy and an effective program. NCUA staff noted during the March 17 meeting that if credit unions are not paying attention to this now, it will have a substantial impact when interest rates rise. A task force of state regulators worked with NCUA on this proposed rule and guidance.  It was approved with a 60 day comment period after publication in the Federal Register.

The NCUA Board also approved a proposed rule including provisions from the legislation, S. 4036, signed by the President earlier this year. Per the legislation, the proposed rule makes changes to the definition of net worth so that NCUA Section 208 assistance could be counted towards net worth. It also includes a revised definition of equity ratio to clarify that the equity ratio of the National Credit Union Share Insurance Fund (NCUSIF) is calculated using the statements of the NCUSIF alone. Further, the proposed rule would authorize NCUA to make premium assessments of FICUs to pay pending or future corporate stabilization fund expenses directly, in addition to the current authority to repay Treasury advances.

In addition to these items, the NCUA Board approved a final rule, Part 704, incorporating technical corrections to recent changes to corporate credit union regulations. The Board also approved a final rule that expands the definition of “low risk assets” for Prompt Corrective Action purposes to extend a zero percent risk-weighting to include the NCUA Guaranteed Notes (NGN) offered to public investors, including credit unions.