WASHINGTON (3/21/12)--The National Credit Union Administration's (NCUA) efforts to beef up the regulation of interest rate risk and credit union service organizations are needed because the agency has to protect against future losses to the National Credit Union Share Insurance Fund, according to NCUA board member Gigi Hyland.
She was addressing the Tuesday session of the Credit Union National Association's Governmental Affairs Conference here.
Hyland noted that the agency had been criticized by its own inspector general and Congress' Governmental Accountability Office for not having done enough during the lead up to the financial crisis to protect the safety and soundness of credit unions.
The stronger regulations, she said, represent "guard rails on the roads on which credit unions travel.''
Hyland, whose term expired last summer but who is remaining on the board pending the appointment and U.S. Senate confirmation of a successor, noted that many recent comment letters on various regulatory proposals indicate that credit union leaders are concerned about the growing regulatory burden.
NCUA Board member Gigi Hyland discussed stronger regulations in her address. Click for a slideshow from day two of the 2012 GAC.
She emphasized that she understood these concerns, especially as a result of her time as a lawyer for credit unions. However, the agency wouldn't be doing its job if it didn't force credit unions to prepare for potentially negative developments in the future.
When interest rates rise again, it will have a considerable impact on the balance sheets of credit unions and that is why the agency mandated that most credit unions develop an interest rate risk policy, which includes stress tests, she noted.
She said that credit unions will be especially impacted by higher rates as a result of having increased the number of real estate loans they have made and because they are keeping a lot of first-time, fixed-rate mortgages on their books.
She pointed out that in 1990 65% of credit unions had no first mortgage real estate exposure, 60% have such exposure today.
"Growing real estate and growing deposit bases create opportunities for growth, but must be managed particularly in today's very unusual interest rate environment.
"Put more bluntly, we know interest rates will rise; it's just a matter of time when they will rise.
"And, when rates rise, will credit unions have the mechanisms in place to manage the possible outflow of these interest rate sensitive accounts, given the large portfolio of fixed rate real estate loans?'' she asked.
Hyland also noted that she had traveled extensively during her tenure on the board, which began in 2005, including visits to 39 states and all of the agency's regional offices. This has given her extensive opportunities to find out what are the concerns of industry officials and this has shaped her decision making as a board member, she added.