ALEXANDRIA, Va.-Despite one consultant's "stress test" that shows CUs are considerably undercapitalized, NCUA believes CU capital is strong enough to withstand ongoing economic challenges, following stress tests the agency has performed.
"Credit unions, in aggregate, have over 9% net worth, which translates to over 200 basis points or $20 billion," said John McKechnie, NCUA director of public and congressional affairs. "This is sufficient to maintain a level that is still considered well capitalized."
NCUA performs rigorous stress testing, McKechnie noted. "We conduct multiple types of stress testing. The first test is the quarterly Risk Report test-delinquency stress levels, and the ALM 17/4 shock test. We also perform additional stress testing regarding the impact of further stresses on real estate portfolios, the impact of exposure to corporate credit union system losses, a stress test similar to the Supervisory Capital Assessment Program employed by the federal banking regulatory agencies, and combinations of these tests.
In the fall NCUA released a summary of its stress testing that measured the CU system under four scenarios (Credit Union Journal, Sept. 28, 2009). The results showed that the NCUSIF is sufficient to meet anticipated credit union failures under all stress scenarios run, but noted that risk to the insurance fund is expected to continue to increase over the short-term.
McKechnie shared that year-end stress testing is in process now, and that the data has been validated. "The current round of stress testing will include additional breakouts for areas more adversely impacted by declines in real estate values and high unemployment," he explained. "We also compare reserves to the level of delinquent loans and loans in foreclosure."
