New NCUA Regulation Requires Development of Interest Rate Risk Policy and Process by Sept. 30

According to a rule issued by the National Credit Union Administration (NCUA) in January, federally-insured credit unions with assets greater than $50 million will be required to develop a written interest-rate risk management policy and process by Sept. 30, 2012, as part of their asset and liability management responsibilities.

“The interest-rate risk policy and implementation program will be among the factors NCUA will consider in determining a credit union’s insurability,” the NCUA said in a statement. The agency went on to say that such programs should be based on generally recognized best practices for safely and soundly managing interest rate risk.”

The rule also applies to institutions with between $10 million and $50 million in assets if the total of first mortgage loans they hold combined with total investments with maturities greater than five years is greater than 100 percent of their net worth.

John Myers of c. myers will be leading two Asset/Liability Management (ALM) trainings in Oregon and Washington in March, including one in Tigard, Ore., March 12-13, and another in Spokane, Wash., March 15-16. The trainings will specifically include strategies and information to help credit unions comply with the new NCUA ALM regulation, lending a sense of urgency and timeliness to the seminars.

According to Myers, there are a number of details credit unions must address in meeting the regulation’s requirements.

“Credit unions must have a risk measurement system in place, either using it in house or having a third party using it for them,” Myers said. “The system has to use the credit union’s data, has to use reasonable and supportable assumptions, and it has to report risk to the board of directors on a regular basis.”

Myers said that the ALM training will not only help credit union professionals understand the new rule and prepare to meet its requirements, but it will also provide actual documents that can be used as the foundation for the credit union’s new policies.

“If you’re interested in learning how to do this and being prepared for the regulation, the education classes are the perfect venue to get that. Credit unions will learn about the different measurable methodologies that are out there and the pros and cons of each of those methodologies. We’ll discuss what a good policy looks like and provide a template of a policy that [participants] can take back to their credit unions to use as a foundation—or to use as their own policy.”

The training will also feature two case studies, allowing attendees to not only gain exposure to managing interest-rate  risk but to also develop strategies for improving earnings. And taking a broader look, the ALM training offers credit unions a simple opportunity to meet the NCUAs requirement that boards of directors receive education on asset/liability management.

The NCUA said that its board adopted the rule “because many credit unions will face increased IRR in the future. At the moment, we are in a historically low interest rate environment that has produced abnormally large interest rate spreads. Many credit unions have taken advantage of these spreads in the short term by borrowing short to lend long. The board’s action is therefore premised on mitigating risks when interest rates inevitably rise.”


Questions? Contact Training Programs Coordinator Yuri Jung: 206.340.4817,

Posted in Compliance News, Events, NCUA.