Updates to Interest Rate Risk Supervisory Framework

To

Federally Insured Credit Unions

Subject

Interest Rate Risk

Status

Active

Dear Boards of Directors and Chief Executive Officers:

The NCUA has revised its interest rate risk (IRR) supervisory framework and issued the attached Supervisory Letter to exam staff to increase clarity and flexibility. The changes to the IRR supervisory framework will improve the focus of the NCUA’s supervision of IRR in credit unions given current market conditions.

The primary changes to the NCUA’s supervisory framework are:

• Revising the risk classifications by eliminating the extreme risk classification and modifying the high risk classification;

• Clarifying when a Document of Resolution (DOR) to address IRR is warranted, including removing any presumed need for a DOR based on an IRR supervisory risk classification and related need for a credit union to develop a de-risking plan;

• Providing examiners more flexibility in assigning IRR supervisory risk ratings; and

• Revising examination procedures to incorporate updated review steps when assessing how a credit union’s management of IRR is adapting to changes in the economic and interest rate environment.

Responding to changing economic and interest rate environments is essential to credit unions’ prudent IRR management and the related risks to capital, asset quality, earnings, and liquidity. Credit unions need to remain disciplined in managing their interest rate, liquidity, and related risks as they navigate the current economic and interest rate environment.

The attached Supervisory Letter will help federally insured credit unions better understand the NCUA’s expectations for managing IRR. I encourage all federally insured credit unions to review the enclosed Supervisory Letter and to take appropriate steps to mitigate risk, if needed.

The NCUA will continue to periodically assess the risk classifications and parameters used in its IRR measurements to ensure their appropriateness. Please contact your NCUA regional office or state supervisory authority if you have any questions.

Sincerely,

/s/

Todd M. Harper
Chairman

NCUA also released this:

Credit unions will receive valuable information about updates to the NCUA’s Interest Rate Risk Supervisory Framework during a stakeholder webinar hosted by the agency on Thursday, September 15, at 2:30 p.m. Eastern.

Chairman Todd M. Harper will provide opening remarks and staff from the Office of Examination and Insurance will explain the updates and respond to questions from attendees.

Registration for the “Interest Rate Risk Supervisory Framework Updates” webinar is now open. The webinar is scheduled to run for 60 minutes. Participants can log into the webinar and view it on computers or mobile devices using the registration link. Allow pop-ups from this website.

Participants can submit questions anytime during the presentation or in advance by emailing WebinarQuestions@ncua.gov. The email’s subject line should read, “IRR Supervisory Framework Updates.” Please email technical questions about accessing the webinar to uccsupport@ncua.gov.

This webinar will be closed captioned and archived online approximately three weeks following the live event.