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NAFCU, NCUA discuss latest on interest rate risk, FHLB, more
NAFCU Senior Vice President of Government Affairs Greg Mesack, Vice President of Regulatory Affairs Ann Petros, Regulatory Affairs Counsel James Akin and Regulatory Affairs Counsel Dale Baker along with NAFCU member credit unions and representatives from third party service providers Wednesday met with NCUA's Office of Examination and Insurance (E&I) and Division of Capital and Credit Markets to discuss important topics for credit unions.
The group discussed ongoing concerns with the NEV Supervisory Test (NEV Test), which measures a credit union's interest rate risks (IRR) exposure relative to its capital, in the context of the rising interest rate environment. During 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.
The meeting comes in the wake of updates to the IRR supervisory framework, announced in a Letter to Credit Unions issued by the NCUA in September. The agency stated that the changes are intended to improve the “NCUA’s supervision of IRR in credit unions given current market conditions.” The NCUA recently held a webinar to discuss the IRR updates, where NCUA Chairman Todd Harper reiterated his concern with the rapid acceleration in interest rates and its impact on credit unions.
In addition, NAFCU’s members requested Board action on a more sustainable maximum interest rate cap to account for the ongoing rise in interest rates.
The group also discussed concerns related to the Federal Home Loan Bank (FHLB) System and the ability to use FHLB advances to bridge short-term funding gaps or to lock in longer-term funding at stable rates. NAFCU has urged the Federal Housing Finance Agency (FHFA) to waive the prohibition in its tangible capital rule to allow credit unions to continue accessing liquidity through advances from FHLBs.
NAFCU remains engaged with the NCUA to ensure credit union voices are heard.