COEUR D'ALENE, Idaho (9/19/13)--National Credit Union Administration Chairman Debbie Matz announced Wednesday that the agency's Office of National Examinations and Supervision is drafting a requirement for annual stress tests at credit unions with assets exceeding $10 billion.
Matz said stress testing would be part of the NCUA's "coordinated approach" to supervision of a changing industry with asset growth concentrated in large credit unions. Stress testing of federally insured credit unions with state charters would be conducted in consultation with the state regulator.
The shocks used in the stress testing would be based on scenarios issued annually by the Federal Reserve, with adjustments for differences between banks and credit unions, Matz said.
Speaking at the National Association of State Credit Union Supervisors' annual State System Summit, Matz noted that the agency is likely to issue the proposed rule for public comment before the end of the year.
"At NCUA, we need to utilize all the tools at our disposal to look ahead in order to protect the industry in the future," Matz said. "Stress tests are forward-looking measures. They're designed to determine whether an institution is holding an adequate capital cushion to survive adverse scenarios and to allow credit unions to make adjustments before a crisis hits."
Now that the agency has made public its plan to pursue a new rule in this area, the Credit Union National Association will be talking with affected credit unions and NCUA officials to minimize the impact and contain regulatory burdens.
The Dodd-Frank Act requires certain financial firms with more than $10 billion in assets to conduct annual stress tests. Matz noted that stress testing is just as important for credit unions of comparable size.
A credit union that fails a stress test would be required to revise its capital plan to demonstrate how it would meet minimum stress test capital ratios, an agency release said. A credit union that passes the test would benefit from the analysis by identifying potential improvements in its enterprise risk management system.
Matz said one issue still being reviewed is whether stress test results would be publicly available. She noted banks are required to disclose their results, but banks are publicly traded entities, unlike credit unions.
She said public disclosure would enhance transparency to members but results could also be misinterpreted and lead to inaccurate conclusions about a credit union's current stability.