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NAFCU Regulatory Affairs Counsel Andrew Morris in a letter last week recommended that the NCUA work to increase transparency and flexibility in its capital planning process to ensure standards are appropriately tailored to fit credit unions' business model, complexity and financial condition.

Morris was writing in response to the NCUA's proposed rule on capital planning and supervisory stress testing. The proposed rule would allow covered credit unions to conduct their own stress testing and incorporate those results into their capital plan submissions. The current process requires the NCUA to conduct a stress test even if a credit union conducts one of its own.

Morris said NAFCU agrees with the NCUA's decision to allow more flexibility for covered credit unions to conduct their own stress testing, but recommended the agency reconsider components of its tiered regulatory approach.

"NAFCU believes that a tiered regulatory approach is a good first step, but is fundamentally limiting – particularly for the largest credit unions," Morris wrote. "Capital planning requirements should not only be tailored based on the complexity and financial condition of covered credit unions, but also contextualized in terms of overall industry risk."

In addition to offering specific ways in which the NCUA could revise its tiers to promote meaningful regulatory relief, Morris also suggested the NCUA adopt transparent procedures for its collection and validation of stress test data.

"[Stress test] instructions should also disclose the stress test methodology relied upon by NCUA," Morris said. "In addition, NCUA should justify changes in stress testing principles by explaining the need for any new or modified data inputs."

To read Morris' full letter, click here.