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NCUA Board Contemplates Adding S to CAMEL Rating
Friday, June 17, 2016 6:40 AM

The National Credit Union Administration held its scheduled open board meeting Thursday. On the agenda were three items: Proposed Rule, Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule; Interim Final Rule, Part 747, Statutory Inflation Adjustment of Civil Money Penalties; and a Board Briefing on Interest Rate Risk Supervision and Adding S to CAMEL.

The introduction of the Proposed Rule, Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule is intended to improve the rule by making it more succinct, improving transparency, and improving the ease of use for credit unions who apply for NCUA's grants and loan program. The program is funded through the Community Development Revolving Loan Fund, which is administered by NCUA's Office of Small Credit Union Initiatives.

A new Interim Final Rule, Part 747, Statutory Inflation Adjustment of Civil Money Penalties was introduced to adjust the maximum level of NCUA's civil money penalties for inflation purposes. The adjustment is specifically required by statute adopted by Congress in 1996 for all federal agencies.

The final agenda item was the Board Briefing on Interest Rate Risk Supervision and Adding S to CAMEL. This was the second briefing of its kind offered by NCUA in an attempt to provide transparency over the rule-making process that NCUA uses in preparing for changes at the agency.

NCUA Board Chairman Rick Metzger said the briefing is the start to a long-range project expected to last two to three years. "This briefing is intended to be a 'first look' to allow stakeholders to ponder changes," he said. 

Larry Fazio, NCUA's director of the Office of Examination and Insurance, explained that NCUA has spent many years researching and analyzing the landscape to find the most successful way to measure interest rate risk (IRR) and noted that the Agency's supervisory approach for IRR needs to be updated. 

If the planned changes were to be adopted, they would add sensitivity elements to provide greater transparency on how interest-rate risk is assessed. Most credit unions would come out as low to moderate risk, based on a 2014 analysis, if this risk-based approach were to be adopted. The potential new system would better calibrate the agency's examination system and would identify action steps. Board member J. Mark McWatters made the comment that he does not wish these changes to have the unintended consequences of creating a backdoor interest-rate risk rule. 

As part of this board briefing, NCUA provided a PowerPoint presentation, which is available for review here.

Cornerstone will continue to monitor and provide comment as developments occur.