NASCUS Encourages NCUA to "Right-Size" Asset Threshold, Make Results Confidential, and Keep State Regulator Informed, In Comment Letter on Capital Planning and Stress Testing Proposal
December 31 In its comments on the NCUA's latest proposed capital planning and stress testing rule, NASCUS agrees with NCUA that a properly developed, thoughtfully implemented, and carefully evaluated stress testing program for very large credit unions could benefit the credit union system. NASCUS encouraged the agency, however, to consider refining the rule in several key areas, including raise the asset size for covered credit unions to submit capital plans from $10 to $50 billion as comparable with the Federal Reserve’s asset limits, treat stress testing results as confidential examination information, and more thoroughly ensure the state regulator is fully involved in the capital planning and stress testing supervisory process in covered federally insured state-chartered credit unions (FISCUs).
NCUA has proposed that credit unions with assets of $10 billion or greater be required to develop and maintain capital plans and to submit those plans annually to NCUA for validation. NASCUS writes in its comment letter, “Capital planning is an essential element of the prudent management of any financial institution. As with stress testing, NASCUS agrees that a more formal regulatory requirement regarding capital planning may carry supervisory benefits for some very large credit unions, as it does on the banking side for some very large banks.” NASCUS expresses concern that NCUA has failed to "right size" the regulation by requiring it for credit unions with assets of $10 billion or greater. NASCUS believes NCUA should consider limiting the requirement for a federally insured credit union to submit a formal capital plan to a threshold more comparable with the Federal Reserve capital plan submission threshold of $50 billion.
While NCUA takes no definitive position in the proposal on whether results of the stress tests should be made public, it states that it recognizes that "public disclosure helps to provide valuable information to market participants, enhances transparency, and facilitates market discipline," and specifically sought comments on whether the results of the stress tests should be made public. NASCUS believes that results of NCUA's stress testing should be treated as confidential examination product.
With respect to the confidentiality of stress test results, NASCUS notes that bank regulators delayed publication of stress test results for several cycles. Furthermore, the fact that NCUA is conducting the stress tests more closely resembles traditional confidential supervisory information than bank stress testing, which is conducted by the banks themselves. NASCUS also noted significant differences in how banks and credit unions raise regulatory capital as presenting unique challenges for credit unions in remediating capital as a result of the test results.
NASCUS commends NCUA for establishing the agency’s commitment to work with the state regulator of a covered credit union when implementing capital planning and stress testing. NASCUS asked that the agency take this commitment further by committing to a similar level of cooperation as Congress mandated under Prompt Corrective Action (PCA). The proposed provision in PCA reads: “Before taking any action under this section against a federally insured state-chartered credit union, NCUA will consult with the applicable state supervisory authority.”
"NASCUS continues to take every opportunity to preserve state authority in the oversight of state-chartered, federally insured credit unions as well as ensure safety and soundness of state-chartered credit unions," said NASCUS President and CEO Mary Martha Fortney. “We look forward to working with NCUA as the agency moves forward with a carefully evaluated stress testing and capital planning program for the largest credit unions."NASCUS and state regulators remain committed to working with NCUA to mitigate material risk throughout the credit union system. To view our comment letter, click here.