The National Credit Union Administration (NCUA) announced a plan to mandate the top largest credit unions to undergo stress tests to ensure these institutions have sufficient capital to withstand a fluctuating economy.
Debbie Matz, chairman of the NCUA told The Washington Post that stress tests were the best way to confirm the industry had necessary protections in place to withstand diversions in the economy.
“Stress testing is just the prudent thing to do,” she said last week. “We need to utilize all the tools at our disposal to look ahead in order to protect the industry in the future.”
Certain variables would be examined including unemployment, incomes, and exchange rates in order to determine the solidity and muscle of larger credit unions.
Although banks were subjected to stress tests under Dodd-Frank, the Fed did not include these rigors for large credit unions. One reason credit unions were not under the microscope was because no findings were made that implicated the industry in the risky lending that led to one of the most catastrophic economic collapses in recent years.
However, the NCUA acknowledges that if one of the largest national credit unions were to fail the stress test, this insolvency could endanger the credit union insurance fund. Additionally, failure to pass could also impact rates and fees as failing credit unions would possibly have to raise more capital through boosting fees and altering rates.
Full test details should be released within the coming months and once plans are announced the NCUA will allow a free forum for comments within 60 days following the release.
The top four named credit unions include Navy Federal Credit Union ($54 billion, Vienna VA), Pentagon Federal Credit Union ($15.8 billion, Alexandria Virginia), State Employees’ Credit Union ($26.7 billion, Raleigh, NC) and Boeing Employees’ Credit Union ($11.5 billion, Tukwila, WA).
Top Credit Unions Respond
For the most part, the largest credit unions in the country support the NCUA’s initiative to perform stress tests. Top credit unions responded to Credit Unions Online’s request for a statement, presenting a strong, united front.
Navy Federal Credit Union submitted a statement saying, "Navy Federal is aware that the NCUA is drafting a proposal requiring credit unions exceeding $10 billion in assets to undergo annual stress tests. Our current capital levels are well-positioned and we never participated in any of the risky business practices that contributed to the recession. We'll be monitoring the progress of this proposal."
Mike Quamma, Boeing Employees Credit Union (BECU) vice president of treasury said that the credit union has been conducting self examinations for years and is confident the NCUA stress test should only confirm its findings.
"As part of our planning and management of the credit union's capital position, BECU has been conducting its own internal capital adequacy testing for approximately nine to 10 years,” he states. “The testing allows BECU to determine a comfortable capital position, given the makeup of our balance sheet, in light of risks in the economy. The stress testing plays a large role in our management of the safety and soundness of the credit union and the appropriateness of our business model."
Jim Blaine, president of State Employees' Credit Union tells Credit Unions Online that he would be very interested in working with the North Carolina Credit Union Division and NCUA to disclose annually the overall stress test results of SECU to the membership. “We feel that full transparency is the best course for financial institutions in this economic environment. It also makes great sense for SECU to disclose the results since, as a cooperative, each of our ‘customers’ is actually a member-owner with an equity interest in SECU. This seems to align closely with the various enhanced disclosure provisions of Sarbanes-Oxley and Dodd-Frank, which apply to investor-owned financial institutions. Although a not-for-profit financial cooperative, SECU is clearly ‘investor-owned’ and is very willing to meet the most stringent standards of disclosure and transparency.”
He adds that “the risks" of disclosure are far outweighed by "the benefits" of an informed membership. “Issuance of the stress test results may well serve as a ‘prudential brake’ against unsound action by both credit union and regulator. After all, who loses when credit union members and the public are well informed?”