NASCUS: Agency should harmonize stress-test proposal with relief agenda

Jan. 3, 2018 -- NCUA should do more to harmonize capital planning and stress-testing rules with its current regulatory reform and relief agenda, so that the agency may “better tailor stress testing rules to actual characteristics of the covered credit unions,” NASCUS has written in its official comment letter.

Responding to the agency’s call for comments about a proposed rule on capital planning and stress testing, NASCUS wrote that it supported the agency’s goals outlined in the proposal, and agreed that the proposal represents improvements over the existing supervisory stress testing rules. But more can be done, the association said, to fit the agency’s own goals. “Because NCUA’s rule is fully within the agency’s discretion, we urge NCUA to act boldly to right-size the rule and correct the deficiencies that have become apparent in the intervening years since initial DFAST (“Dodd-Frank Stress Tests”) rule promulgations,” NASCUS wrote.

Under the proposal, three tiers for “covered credit unions” would be established, based on asset size and tenure under the supervision of the agency’s Office of National Examinations and Supervision (“ONES”). Tier I will include covered credit unions during the first three years under the supervision of ONES and the first three capital planning cycles. Tier II credit unions will be those covered credit unions in their fourth years of ONES supervision, entering their fourth capital planning cycle, with assets between $10 billion and $20 billion.  Tier III will be covered credit unions that have assets greater than $20 billion

The NASCUS comment letter recommended:

  • NCUA should increase the thresholds for the proposed tiers for covered credit unions (those affected by the rule) to an asset threshold greater than $20 billion;
  • The agency should consider whether supervisory stress tests could be conducted periodically rather than annually;
  • The frequency of data submissions associated with supervisory stress testing should be reduced;
  • Redundant requirements should be eliminated for covered credit unions;

“The changes as proposed by NCUA represent a good start to reforming these rules, and we urge NCUA to take this opportunity to make further improvements,” NASCUS wrote. “There is a general consensus that the bank DFAST rules upon which NCUA modeled its capital planning and stress testing rules are flawed in their application to regional institutions with limited footprints and assets less than $50 billion.

“However, where the bank regulators are unfortunately constrained by the Dodd-Frank Act, NCUA faces no such constraints. Furthermore, as is clear from the numerous initiatives to raise thresholds on the bank side, NCUA can pursue our recommended improvements to the rule without sacrificing prudential safety and soundness,” NASCUS wrote.

NASCUS Comments: Capital Planning and Supervisory Stress Testing