NCUA makes changes in interest rate risk assessments

As a result of interest rate and economic changes, the NCUA announced last week that it would provide more flexibility in its interest rate risk (IRR) assessments of credit unions.

The change follows a letter from CUNA President/CEO Jim Nussle warning the agency that the assessment was not accurately measuring the risks that individual credit unions pose. Nussle had said that the problems raised questions about whether the IRR test should be used as an examination tool.

The changes were announced in a letter to credit unions from NCUA Chairman Todd Harper. “Due to the changing economic and interest rate environments during 2022, the NCUA reviewed the parameters and risk classifications of the [net economic values] Test and overall IRR supervisory,” Harper wrote. “The changes to the IRR supervisory framework will improve the focus of the NCUA’s supervision of IRR in credit unions given current market conditions.”

How Will the Process Change?

The letter explained that the agency will revise the risk classifications by eliminating the “extreme risk” classification and modifying the “high-risk” classification. In addition, Harper said the NCUA will clarify when a Document of Resolution (DOR) is needed to address interest rate risks and will remove any presumed need for a DOR based on the “supervisory risk” classification.

 

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