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NCUA hosts webinar on interest rate risk supervisory framework updates
The NCUA on Thursday held a webinar to discuss and share more information with credit unions on its recent updates to the interest rate risk (IRR) supervisory framework. The virtual event was attended by more than 1,000 credit union officials, reaffirming the industry’s high level of interest in the topic.
During his opening remarks, NCUA Chairman Todd Harper stated his concern with the rapid acceleration in interest rates and its impact on credit unions. Harper mentioned that the agency will provide separate training, guidance, and support for examiners to help ensure the updates are properly implemented.
Updates to the IRR were announced in a Letter to Credit Unions earlier this month as a part of the agency’s approach to create a more flexible framework, one that would improve the NCUA’s “supervision of IRR in credit unions given current market conditions.”
According to the announcement, part of these changes apply to the NCUA’s NEV Supervisory Test (NEV Test), which measures a credit union's IRR exposure relative to its capital. In 2020 and 2021, many credit unions experienced significant share growth, which continues to depress net worth ratios, followed by a rapid rise in benchmark interest rates in 2022, leading to poorer NEV Test results compared to prior years.
As discussed in both the announcement and the webinar, the primary changes to the framework include:
- revising the NEV’s Test risk classifications by eliminating the extreme risk classification and modifying the high risk classification;
- clarifying when a Document of Resolution (DOR) is warranted, including removing any presumed need for a DOR based on an IRR supervisory risk classification, and the related need for a credit union to develop a de-risking plan;
- providing examiners more flexibility in assigning IRR supervisory risk ratings; and
- revising examination procedures to incorporate updated review steps when assessing a credit union’s management of IRR in a changing economic and interest rate environment.
NCUA staff, during the webinar, also stated it is evaluating DORs issued to credit unions in 2022 based on findings of extreme IRR, to determine whether a DOR would be warranted under the new guidance.
Credit unions can review the NCUA’s presentation and explore the IRR workbook here.
NAFCU met with the NCUA in July to discuss credit unions' IRR challenges and how the NCUA can help credit unions better manage IRR in a rising rate environment. The association will continue to monitor and advocate for additional resources and tools to help credit unions manage IRR.