NCUA Issues Final Interest Rate Risk Rule

NCUA

On February 2, the National Credit Union Administration (NCUA) issued a final rule amending Part 741 of its insurance rules to require certain federally insured credit unions (FICUs) to adopt written interest rate risk policies and programs. These interest rate risk policies and programs must include five elements: (i) Board approval, (ii) Board oversight and management implementation, (iii) risk-measurement systems to assess the interest rate risk sensitivity of earnings and/or asset and liability values, (iv) internal controls to monitor adherence to interest rate risk limits, and (v) decision-making that is informed and guided by interest rate risk measures. The new rule applies to all FICUs with assets greater than $50 million and to any FICU with assets between $10 million and $50 million that has a Supervisory Interest Rate Risk Threshold ratio (SIRRT ratio) greater than 1:1. FICUs can calculate their SIRRT ratio by adding together their portfolios of first mortgage loans and investments with maturities greater than five years, and dividing that figure by the FICU’s net worth. The final rule also contains guidance on how to develop an interest rate risk policy and program that is based on generally recognized best practices for safely and soundly managing interest rate risk. The rule is effective September 30, 2012.