A clampdown on investments by the National Credit Union Administration has forced some institutions to dump securities and raised grumbles in the industry.

Credit unions have been required since July 1993 to administer a stress test to their investments during changing market conditions. The NCUA requires that investments that fail the test be marked to market value and divested.

With interest rates rising, credit unions are feeling the pinch.

"We're emphasizing our stress test, and when investments don't meet the stress test we're going to require divestiture," NCUA Chairman Norman E. D'Amours said in an interview last week. "Some say we're getting too strict and changing the rules -- that's not true. We're enforcing the rules that are on the books.

"We never signed on to the FFIEC [Federal Financial Institutions Examination Council] idea of allowing investments that failed the stress test to he held to maturity," he said.

Mr. D'Amours said the agency's enforcement should prevent "dicey situations" in the future. Last year some credit unions suffered severe losses with collateralized mortgage obligations they had purchased.

Pat Keefe, spokesman for the National Association of Federal Credit Unions, said some industry officials were confused about the agency's crackdown and frightened by it. Until interest rates rose, examiners didn't emphasize regular stress tests.

Credit unions also are alarmed by statements regarding collateralized mortgage obligations in Mr. D'Amours' September testimony before the House Banking Committee.

In his testimony, Mr. D'Amours said the agency planned to soon adopt the Federal Accounting Standards Board's rule on marking investments to market, known as FAS 115. The rule, together with the stress test, will require credit unions to classify most CMOs as "available for sale" investments that must be accounted for at fair value.

Ironically, banking regulators last week dumped plans to require banks to subtract unrealized losses under Federal Accounting Standard 115 from core capital. Bankers complained that the proposal would have caused wild fluctuations in their capital levels.

Mr. D'Amours said the NCUA won't follow his fellow regulators' lead.

"The industry's capital is strong enough that we can do this without worrying," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.