NCUA’s Interest Rate Proposal Seen As Risky Business

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ALEXANDRIA, Va. – Credit union executives are panning NCUA’s proposal requiring all credit unions to adopt an “effective” policy on interest rate risk, saying a one-size-fits-all policy requirement could have unintended consequences and monitoring of interest rate risk can better be accomplished through the flexibility of the examination process.

“As proposed, we are confident the regulation has the potential to negatively impact credit unions and the share insurance fund through a false sense of confidence in measures without true value,” Michelle Tygart, staff attorney for Public Service CU of Denver, told NCUA in a comment letter on the proposal.

“We believe that the assessment of interest rate risk is unique to every institution and must be evaluated based on their own complexity, capital and operations,” commented Bill Urik, CFO for Minnesota’s Affinity Plus FCU.

“Not only would this place undue burden on the credit union industry, it also forces credit unions to monitor the risk based on the required standards rather than the parameters appropriate for each individual credit union,” wrote Kathy Guderian, chief financial officer for Missoula (Montana) FCU.

“The proposed regulation appears to be a solution in search of a problem,” commented Terrance Borreson, CFO at Arkansas FCU. “The NCUA does not have a very good track record, as demonstrated by the bailouts of the various corporate credit unions, and why would the implementation of a new regulation, administered by relatively inexperienced examiners, produce the results that should be expected from this regulation.”

“A primary concern for us,” wrote Clay Morgan, CFO for Shefield, Ala.’s Listerhill FCU, “is the unilateral authority inherent within the proposed rule making the field examiner the sole arbiter of what is ‘effective’ management of interest rate risk. We have previously received conflicting opinions from two separate examiners (both were Capital Markets Specialist) in our annual examination process from year to year about what makes up an appropriate and ‘effective’ program to manage interest rate risk.”

“The determination of what constitutes an ‘effective interest rate program’ requires much subjectivity, and will, without a doubt, produce irreconcilable differences in opinion between credit unions and NCUA representatives,” wrote Ricky McCormick, vice president finance for DuPont Fibers FCU, Chesterfield, Va.

Michael Daugherty, president of Community Plus FCU in Rantoul, Ill., warned of unintended consequences of the interest rate risk rule. “We are especially concerned about a ‘one-size-fits-all’ approach that seems to happen too often these days. We fear that examiners will work from a checklist, and rather than determining if the credit union’s program is adequate for its needs the examiners will instead just look to make sure they are addressing everything is on the list,” he wrote.


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