NOVEMBER 2011 NUMBER 11

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HIGHLIGHTS

Office of Examination and Insurance Report INTEREST RATE RISKS ON THE HORIZON

2 Chairman’s Corner Lifting the Burden on Community Charters

3 Board Actions

4 Board Perspectives Safety and Soundness – A Ubiquitous Phrase Common Sense Approach is Always Best

Earlier this year, the NCUA Board issued a notice of proposed rulemaking (NPRM) on interest-rate risk management at natural person credit unions. In general, this proposed rule would require federally insured institutions facing serious interest-rate risk to take the same steps to manage that exposure that bank and thrift supervisors expect of their institutions.

5 NCUA LearnCenter Report NCUA Hosts Financial Literacy Training Resources

6 Region I Report Determining Safety and Soundness – From the Examiner’s Perspective

Specifically, the NPRM requires all federally insured credit unions holding more than $50 million in assets, and those holding between $10 million and $50 million with significant capital at risk from a rate shock, to have an effective interest-rate risk management program enshrined in a written policy. In an ongoing dialogue with the industry since the NPRM was issued, two questions have repeatedly surfaced:

; Is such a rule still needed now that interest rates have fallen?

; Was a rule really ever needed given the industry’s success at working through periods of rising rates in the 1990s or 2000s?

In response to the first question, NCUA acknowledges the interest-rate environment has changed. Indeed, between January and September, the average yield on one-year Treasury bills tumbled from 0.27 percent to 0.10 percent. So the typical credit union— which funds long-term fixed-rate mortgages with short-term shares and share certificates—has enjoyed some earnings relief, at least on the interest-rate front. Viewed another way, mortgages booked earlier are still paying higher rates, while funding costs have fallen dramatically.

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7 New NCUA Website Launched

8 Office of Consumer Protection Report

Fraudulent Activity Can Affect Credit Unions and their Members

Washington — NCUA Board
Chairman Debbie Matz (far
right) and Todd Harper, Office
of Public and Congressional
Affairs director, greet
House Financial Institutions
Subcommittee Chairman
Shelley Moore Capito
before the member business
lending hearing Oct. 12.