NCUA Final Stress Testing Rule Includes NASCUS' Changes

In a vote of 2-1 today, with NCUA Board member Michael Fryzel voting “no,” the NCUA Board approved a rule that requires federally insured credit unions (FICUs) with assets of $10 billion or more to develop and maintain capital plans. The rule also provides for NCUA annual stress testing of those credit unions.

In its final rule, “Part 702 – Capital Planning and Stress Testing,” NCUA rejected the recommendation of NASCUS and others that the rule mirror the bank threshold of $50 billion. However, the agency did make several other changes recommended by NASCUS.

NASCUS had strongly urged NCUA to strengthen provisions related to working with state regulators in administering the rule, and the NCUA, in its final rule, has provided for this. The NCUA states that it will not only commit to consulting but also to working cooperatively with state regulators.

In its comment letter, NASCUS noted that, while making public the results of a stress test is compelling, “the inexperience of the credit union system administering a formal stress testing regulation, the uniqueness of credit union structure, and the example set by the Dodd-Frank mandated large bank stress testing suggest the stress test results be treated as confidential examination product.” The NCUA agreed that maintaining the confidentiality of the results of stress tests is important.

NASCUS also questioned NCUA’s analysis of the regulatory burden of the rule, and NCUA conceded, recognizing in the final rule that compliance will require more work hours than anticipated.

NASCUS had also recommended that the credit unions themselves conduct the stress test with NCUA validating the results. While NCUA rejected that recommendation for now, the final rule does contain a new provision allowing for that possibility in the future.

As NASCUS analyzes the final rule in full, President and CEO Mary Martha Fortney noted that NASCUS had never opposed the concept of stress testing, but rather had sought to improve its administration within the credit union system.

“This represents an improvement over the proposal,” Fortney said. “We will continue to work with the NCUA on stress testing rule improvements and on issues important to the credit union system.”

To read NASCUS’ comment letter on the original proposed rule, click here. To read the NCUA’s final rule, click here.

 

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