Tuesday, September 24, 2013

Disclosing Stress Testing Results

In a speech at the National Association of State Credit Union Supervisors’ annual State System Summit, National Credit Union Administration Board Chairman Debbie Matz announced the agency is drafting a proposed rule to require annual stress tests at credit unions with assets exceeding $10 billion.

There are currently four credit unions with at least $10 billion in assets with a fifth credit union nearing the threshold.

However, according to the NCUA press release, the agency has not made a decision about requiring the results of the stress test to be made public.

Section 165(i)(2) of the Dodd-Frank Act requires publication of a "summary" of the results of the stress tests for covered institutions. However, credit unions are not covered by this section of the Dodd-Frank Act, so there is not a legislative mandate to publicly disclose the results.

While Matz acknowledges public disclosure would enhance transparency to members, she is worried that the results can be misinterpreted and lead to inaccurate conclusions about a credit union’s financial health.

But are Chairman Matz's concerns about disclosure overblown?

Federal Reserve Chairman Bernanke in an April 8, 2013 speech noted the benefits of disclosure by stating "the disclosure of stress test results and assessments provides valuable information to market participants and the public, enhances transparency, and promotes market discipline."
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2 comments:

  1. AnonymousSeptember 24, 2013 at 12:38 PM

    "The FDIC works hard to nurse banks off of their problem bank list, so it’s important that this LIST BE KEPT CONFIDENTAL. On average, the vast majority (87 percent) of banks on this list come back to healthy status – continuing to make loans in their local communities."

    Contact: John Hall, ABA Public Relations (202) 663-5473 or jhall@aba.com

    ReplyDelete
  2. AnonymousSeptember 24, 2013 at 1:12 PM

    "The fact that safety and soundness examinations have remained confidential clearly validates the need to keep these (Stress) tests confidential. It seems irresponsible to release stress test results that may indicate a bank or company is in trouble when the safety and soundness examination could show an exactly opposite condition."

    Beth Knickerbocker
    ABA Vice President and Senior Counsel

    ReplyDelete

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