ALEXANDRIA, Va. – NAFCU on Friday called on NCUA to give its examiners more guidance in examining the new mandated interest-rate management rules, saying its members are increasingly complaining about examiners substituting their own opinions and judgments for that of credit union management.

“For example, some of our members have reported that examiners are steering credit unions toward, and effectively requiring, policy limits and day-to-day franchise management based on…16-year-old industry-wide NERA core deposit study,” said NAFCU President Fred Becker in a letter to NCUA Chairman Debbie Matz. “The examiners then suggested the members initiate drastic balance sheet restructuring that would necessitate selling large portions of the long-term (three years or longer) investments and long-term (five years or longer) loans and shift those dollars into very short term and/or floating rate loan and investment products without regard to current economic forecasts that expect rates to remain at current low levels for another one to three years.”

“Under that plan,” wrote Becker, “many credit unions would have to curtail their long term lending and much of their member business lending. Shifting assets this way into very short term products would drastically reduce net interest margins, thereby reducing net income and the member’s net worth, which would seem to be counter-productive to the overall goals of the NCUA.”

Becker said credit unions should have the flexibility to determine the appropriate testing and modeling based on industry-accepted standards and expert advice. “Indeed, in many of the letters and policies set forth by the NCUA there is acknowledgement that credit unions may use franchise specific cash flows obtained from qualified third-party vendors.  However, in examinations, the NCUA has disregarded such data, especially with regard to non-maturity deposits.”

He called on NCUA to give clearer guidance to examiners with regards to how to approach examination of credit unions’ IRR management, particularly emphasizing that each credit union’s situation is unique and the models, assumptions and testing it employs should be commensurate with its portfolio. “Flexibility,” wrote Becker, “is paramount on this issue.”

 

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