ABA Comment on NCUA's Stress Test Proposal

In a comment letter to the the National Credit Union Administration (NCUA), the American Bankers Association (ABA) expressed its support for a proposal to subject a federally insured credit union (FICU) with over $10 billion in assets to annual stress testing, just as banks of similar size are required to do under the Dodd-Frank Act.

ABA noted that stress testing is an important and beneficial tool for both institutions and regulators in developing appropriate risk-management decisions and providing valuable information to both parties.

The proposal would require FICUs with assets of $10 billion or more to submit capital plans annually to NCUA. If the supervisory stress test shows that a covered FICU does not have the ability to maintain a stress test capital ratio of at least 5 percent under expected and stressed conditions throughout a nine-quarter stress test period, NCUA will require the credit union to take steps to enhance capital and/or may take other supervisory actions against the FICU.

However, ABA called for NCUA to revise the net ratio to 6 percent, which is “the mandated statutory level to be adequately capitalized”; at 5 percent, a FICU would be “undercapitalized.” This would ensure comparability with the bank stress test, which requires a bank to be adequately capitalized to pass the test.

ABA also said that FICUs should be held to the same public disclosure requirements about the results of their stress tests that banks are. ABA wrote: "Credit union members/owners deserve to have the same information available to them ... so they may determine — with complete and consistently reported information — the best place for their money and business."

If the proposed rule is adopted by the NCUA Board it would immediately affect four credit unions.

Read the letter.