NORWALK, Conn. – NCUA joined the banking regulators in urging the Financial Accounting Standards Board to consider a condensed version for non-public entities, like credit unions, when it issues a final rule on disclosures for interest rate and liquidity risk from financial institutions.
Echoing concerns expressed by credit unions, NCUA and the banking regulators told the FASB in a comment letter that certain accounting standards “may not appropriately address the unique circumstances and needs of private company preparers and users.”
“As a result, we recommended that new standards should provide for condensed disclosures for private companies when such disclosures would substantially lessen reporting burden while not substantially reducing decision-useful information,” said the regulators, which also include the Federal Reserve, FDIC and Office of the Comptroller of the Currency. The comment letter was signed by the chief of examinations at each agency, including Larry Fazio, director of NCUA’s Office of Examinations and Insurance.
The regulators asked the FASB to consider the usefulness of the proposed comprehensive risk disclosures, compared to the cost of providing the information.
The regulators said they all have recent or pending rules and guidance dealing with planning and preparation and disclosure of risks for interest rates and liquidity. NCUA recently passed a rule that will require credit unions to develop and adopt a written policy on interest rate risk, which took effect Sept. 30.
The FASB proposal, a response to the 2008-2009 financial crisis, would require credit unions and other entities to provide a table showing their available liquid funds – cash, high-quality assets they could sell quickly, and available borrowing capacity – and discuss their exposure to liquidity risk, how it has changed and how they are managing it.
Credit union executives commenting on the FASB proposal all noted the measure is aimed at the failure of publicly owned financial institutions and companies who failed to adequately disclose to their shareholders the risks they faced at the onset of the financial crisis. They also note that regulators, by far the most common users of credit union financial statements, already have a variety of regularly updated data on interest rate and liquidity risk faced by credit unions.
Under the FASB proposal, financial institutions would have to provide expanded information on interest rate and liquidity risk, such as a table of all their financial assets and liabilities broken down by maturity, including off-balance-sheet obligations.
Financial institutions also would have to disclose how changes in interest rates would affect profits and shareholders’ equity.
Credit unions would have to disclose the carrying amounts of classes of financial assets and liabilities segregated according to time intervals based on contractual repricing of the financial instruments and including the weighted-average contractual yield by class of financial instrument and time interval, as well as the duration of each class of financial instrument. They would have to disclose an interest rate sensitivity table on the effects on net income, and additional quantitative or narrative disclosures necessary for users of financial statements.