NCUA Board approves modified stress-test rules
NCUA proposed the Capital Planning and Stress Testing proposed rule in October 2013. The final rule applies to federally insured credit unions with $10 billion or more in assets. Stress tests will be required to be performed annually. Stress testing is a forward-looking tool designed to evaluate whether a credit union holds sufficient capital to survive certain adverse economic events and is adequately prepared to make adjustments before a crisis occurs. The rule will also require covered credit unions to develop and maintain capital plans. The testing will be done by independent vendors, but chosen through NCUA, and the cost will be paid for through the National Credit Union Share Insurance Fund (NCUSIF). NCUA has estimated the cost to be about $1 million per stress test the first year, and $500,000 for subsequent years, and a total estimated cost projection of $5 million for implementation of the rule in just the first year.
One aspect of the proposed rule that was in contention was whether or not the stress test results should be made public; under the final rule, the first three year cycle of results will not be disclosed, although NCUA has indicated this aspect of the rule may be revisited in the future.
The stress test requirements will require covered credit unions to conduct specific capital analyses to evaluate how changes in variables, parameters and inputs used in their capital plans could affect their capital. Credit unions will also be tested as to how interest rate shocks would impact their net economic value. Currently, the rule will only apply to four or five credit unions, all of which already engage in independent stress testing. The final rule, as adopted, will allow covered credit unions to apply to have their own stress test results used, instead of NCUA’s, for NCUA’s review, after three years if they meet certain benchmarks.
The final rule will be effective thirty days after publication in the Federal Register, which is expected shortly. A draft of the final rule submitted for publication can be found on NCUA’s website.