Monday, January 6, 2014

Publishing Stress Test Results, CU Trades Say Nyet

Credit union trade associations gave a thumbs down to the idea of publicly disclosing the stress test results for credit unions with $10 billion or more in assets.

The Credit Union National Association (CUNA) in its comment letter stated that the public disclosure of stress test results is neither appropriate nor useful for credit unions. CUNA wrote:
"We realize that the bank regulators make such information public. However, we do not think such disclosure is appropriate for credit unions. Credit unions already have a number of incentives to avoid risks. This includes limits on how credit unions build capital, limits on activities and investments, and certain membership conditions. A number of mortgage lending credit unions are also concerned that the new mortgage rules, particularly with the emphasis on “qualified mortgages,” may mean they will limit loan offerings for those who do not meet QM requirements.

No one knows for certain what the impact of the disclosure of stress test results would be on covered credit unions. (One good reason in itself not to disclose the results.) It is easy to see, however, that such disclosure could result in self-limiting of services if credit unions fear risk taking will result in a poor showing under the stress testing.

Public disclosure of stress tests may be appropriate for banks, many of which are publicly traded. However, we cannot agree that it is appropriate or useful for credit unions, and we urge NCUA not to pursue this approach."
The National Association of Federal Credit Unions (NAFCU) also advised against making public the stress test results. NAFCU wrote:
"[i]f the NCUA insists on pursuing stress testing and capital planning, it should allow credit unions at least two full reporting cycles to evaluate the necessary resources and identify any potential implementation issues. Only after assessing the results from these cycles should the NCUA promulgate final stress testing and capital reporting requirements. The NCUA should also refrain from making a decision regarding public disclosure until after making such assessments. Banking prudential regulators make these results public because this information could be pertinent to the banks’ investors, and therefore, increased transparency is necessary for the public investment markets to function properly. Credit unions on the other hand have members-owners, not investors. Given that there may be potentially sensitive confidential exam information in the stress testing results, the NCUA should not disclose these results without finding of a compelling reason to do so or examining the issue further."

In addition, the National Association of State Credit Union Supervisors (NASCUS) believed that results of NCUA’s stress testing should not be disclosed; but rather treated as confidential examination product. NASCUS noted that "the inexperience of the credit union system administering a formal stress testing regulation" and "the uniqueness of credit union structure" were compelling reasons to not publicize the results.

NASCUS echoes NAFCU's position that credit unions do not have investors, so there is no public policy rationale for the dissemination of the stress test results. NASCUS further points out that credit unions can only build capital through retained earnings, which takes time. NASCUS worries that a covered credit union would be stigmatized by a "failed" stress test for some time, which might lead to a run by its members and endanger the National Credit Union Share Insurance Fund.

Interestingly, NASCUS letter makes the case for credit unions to be subject to a higher capital (net worth) requirement than banks. NASCUS states that unlike its bank counterpart, "a cover credit union has limited options available to it to build capital and restructure its balance sheet."


  1. Circular logic.
    Members aren't owners in the same manner that a shareholder of a bank is an owner when it comes to a safety and soundness regulation.
    If one listens to Cuna long enough, they talk out of both sides of their mouth. Cuna's letter also speaks to the fact that banks can and do execute on more types of business and therefore have more ways to cause failure.
    True, however credit unions are limited and therefore have concentration risk and also fewer sources of income to relieve margin pressure.
    Diverse income streams versus concentration risk in an increasingly low margins business?

  2. we talk an awful lot about transparency. but when the rubber hits the road we sure as the devil don't want to show it. what's the big secret? some credit union's are not doing well. some are reporting negative earnings year after year. why bother to stress test if the results turn out to be troubling? Clearly we don't want to make public disclosure to a membership based organization. If they only knew. Meanwhile the CEO takes home his multi-million $ SERP. As I recall Bob Siravo's SERP was over $6M. No wonder there was no public disclosure to the membership. WesCorp FCU was placed into conservatorship. How soon we forget.



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