BROOKFIELD, Wis.-With NCUA requiring FCUs with more than $50 million in assets to have a written policy and program on interest-rate risk management in place by Sept. 30, one person is asking whether credit unions will make the deadline and if all the right CUs are paying attention to the rule?
Fiserv's Orlando Hanselman said the approaching deadline brings with it demands for a great deal of education and process change within many credit unions. The director of education programs for Fiserv risk and compliance also questions if all the right asset size CUs are following NCUA's Letter 12-CU-05.
"The reg is clearly being pushed further down by NCUA in credit union asset size, to some as small at $10 million," said Hanselman. "I am not sure some of the smaller credit unions realize this."
Hanselman said the rule spells out that CUs below $50 million that have higher interest rate risk exposures can also be subject to the guidance, as well.
Another issue, explained Hanselman, is whether credit unions have the time to make the proper assessment of their current interest rate risk programs, determine the gaps from where the CU currently stands to where it needs to be as outlined in the letter, and be able to implement changes by Sept. 30.
"That is tight. But credit unions have to make the time," he said. "I think if the CU has made this gap assessment in a thorough and responsible manner and has a plan for compliance with outlined action steps and assigned accountability, the NCUA will look upon the plan favorably as long as total compliance is not achieved long after Sept. 30."
Concerns For Certain Credit Unions
Hanselman is concerned for a number of credit unions, especially those ranging from $10 million to $400 million in assets. "In my work with credit unions of this size, I have not found many able to meet all the intent, spirit, and heightened regulations pertained in the NCUA letter."
Hanselman observed that many CUs must change philosophically their approach to compliance in this area, moving away from a "check-the-box" mentality to one in which real change is produced.
"A lot of the smaller credit unions have traditionally outsourced their ALM management and interest rate testing and protocol," said Hanselman. "That is still acceptable. However NCUA, in this document, is emphatic that even though you outsource the processing and measurement, the management and board are responsible for understanding the vendor reports, interpreting them, and most important, management must utilize the results that come from the system/reports to make operational decisions regarding pricing, products, and balance sheet structure and funding. I have found that many credit unions simply use a vendor, get the reports, and then say they have complied. No longer will that be acceptable."
Hanselman is also worried about the perceptions and attitudes of some of CU management today, those too young to have experienced an interest rate risk crisis. Hanselman reminded that rates today are 500 BPs below where they were in 2006 to 2007. Hanselman said he worries that some credit union execs are "shallow water sailors"-individuals who buy a boat for the first time, don't learn how to use it well, but do OK in calm waters.
"But as the waters become more hazardous and choppy, I find there are a lot of new people to the industry who may have become complacent in thinking that these kinds of low rates are not the exception," observed Hanselman. "They do not have the heightened sensitivity nor the preparedness to deal with some of the consequences of rising rates, such as quicker loan prepayment and quicker core deposit decay."