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Caution: NCUA’s Proposed Regulation On IRR Could Have Unintended Consequences

You think you are already doing everything required in the proposed Regulation.  You think your policy limits are appropriate for your strategy and business model—but will the examiner making the judgment as to whether your credit union is in compliance think the same?

NCUA’s proposed shift from Advisory to Regulation is concerning.

It raises several questions, such as:

  • What power will NCUA gain that they don’t currently have by implementing a Regulation on IRR management?
  • How will NCUA change their approach in the exam process once this Regulation is implemented?  If NCUA says there will not be a significant change in their approach, then why is there a proposal to shift from Advisory to Regulation?  In other words, what problem is NCUA trying to correct?
  • If the board believes the policy limits are adequate and they are managing to those limits, yet the examiner believes otherwise, will the credit union be deemed out of compliance with Regulation?
  • If so, what are the credit union’s options under this new Regulation?  Specifically, what options or control will the credit union no longer have once the Regulation is implemented?
  • Under the umbrella of the Regulation, will the examiner be able to require the credit union to conduct additional analyses or else be deemed out of compliance, even if the credit union feels the cost/benefit would not exist?

We agree with much of the underlying intent of the proposed Regulation.  We also agree with NCUA that it is impossible to establish specific regulatory requirements.  Therefore, by necessity, the proposed Regulation is ambiguous.  Ambiguity creates confusion and will make the Regulation difficult to reasonably implement.

If there is no identified, compelling reason to go from an Advisory to Regulation, then why do it?

Keep in mind as you contemplate our comments that our business is to provide asset/liability management services to financial institutions.  A Regulation of this type could greatly enhance our business opportunities, yet we believe that NCUA shifting from an Advisory position to a Regulation is wrought with undesirable, unintended consequences.

To read our full response, please click here.