The nation's credit unions are pushing back against a plan to subject them to the same stress tests required of other financial institutions by the Dodd-Frank Act.

In October, the National Credit Union Administration, which charters and supervises federal credit unions, proposed a rule requiring federally insured credit unions with assets exceeding $10 billion to develop and maintain capital plans, and undergo annual stress tests. On New Year's Eve, the deadline for comments, the Credit Union National Association challenged the need for these requirements.

The rule is not needed to ensure that credit unions will conduct stress tests and comprehensive capital planning, "since it is in their own best interests, and those of their members, to do so," CUNA said in the letter. Instead of finalizing a new rule, the NCUA should issue similar guidance and administer the guidance through the examination process, Deputy General Counsel Mary Dunn wrote.

"We do not believe that NCUA has sufficiently substantiated the need for a new regulation, given the financial performance of credit unions in general and the largest credit unions that would be covered by the rule in particular," Dunn added. The letter also notes that the Dodd-Frank Act did not include NCUA in the list of agencies required to implement capital plan or stress testing regimes.

Issuing guidance, as opposed to a new regulation, would be less costly for credit unions and the agency to implement, and would provide additional flexibility for credit unions to develop their own models and plans, the comment letter says. It adds that NCUA should not subject covered credit unions to sanctions for failure to meet capital planning or stress test benchmarks; should not establish a formal process for rejecting a credit union's capital plan; and should not publicly disclose stress test results.

The National Association of Federal Credit Unions also weighed in. Although it considers stress testing and advanced capital planning to be “important tools,” the proposed rulemaking should not be adopted, wrote Carrie Hunt, general counsel and senior vice president of government affairs.

Costs would significantly outweigh any benefits, the letter says. There are currently only four covered credit unions that would be subject to the proposed rulemaking, all of which already engage in some form of stress testing and capital planning and have all the necessary incentives to continue to do so. At an estimated cost of at least $1 million per stress test in the first year and $500,000 each year thereafter, the rule would result “in an expensive and unnecessary duplication of efforts by the NCUA.”

“Given that the covered credit unions survived the recent financial crisis without the need for additional NCUA stress testing and oversight, [it is] not demonstrated that the stress testing would be worth the cost and risk to the rest of the credit union industry,” the letter says.

Hunt also makes the case that unlike other financial institutions, “credit unions did not cause the financial crisis” and should not be subjected to the same regulatory standards as those that did. “Congress had the ability and opportunity to include a mandate in the Dodd-Frank Act that the NCUA perform stress testing alongside the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, but notably chose not to do so,” the letter says. “The NCUA should acknowledge Congress' decision and not force regulatory parity where it is not necessary.

Among the group's suggestions is that, instead of selecting a third party to conduct expensive stress testing that duplicates individual efforts, the NCUA should allow covered credit unions to continue to conduct their own stress testing which is then reviewed by independent consultants. Alternatively, after receiving input from the industry, the NCUA could craft stress testing standards. Each covered credit union would incorporate these requirements into its own stress testing process and, if needed, the NCUA could audit the results to ensure compliance.

 

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