NCUA Report - February 2012

BOARD ACTIONS (FROM PAGE 3)

; Oversight by the board of management’s implementation of the IRR policy;

; Development of risk-measurement systems to assess the IRR sensitivity of earnings and/or asset and liability values;

; Establishment of internal controls to monitor adherence to IRR limits; and

;Implementation of a decision-making process that is informed and guided by IRR measures.

“Our standard for interest rate risk policies is not one-size-fits-all,” added Chairman Matz. “We realize that exposed credit unions have different risk profiles. So while we are providing a template policy, we are also providing flexibility for credit union managers and board members to develop their own policy. And we are giving affected credit unions until September 30th to comply.”

NCUA Continues to Explore Options
for Interest Rate Derivatives

The Board voted to release an advance notice of proposed rulemaking (ANPR) to seek additional public comments to identify the conditions in which federal credit unions (FCUs) can engage in certain derivatives for the purpose of offsetting interest rate risk.

NO MR. NICE GUY (FROM PAGE 4)

I have experienced firsthand what it is like to make decisions that are not popular. I have heard the voices that have questioned those decisions and tried to pass the blame. But I have accepted the responsibility for those that were made as well as acknowledged the shortcomings of NCUA.

However, early on I said I would not sugar coat what needed to be done and that the necessary steps would take a long time and cost a lot of money. I asked the credit union industry to work with the regulator to solve the problem, put in place what is essential so that it would never happen again and accept the fact that there is enough blame to go around for everyone.

Keep in mind, the crisis we faced was unprecedented. The decisions that were made needed to be made quickly. They were made for the good of the whole so that the entire industry could survive. Everyone felt the pain, some more than others. But that is how a cooperative system works. So, when someone issues a report, an analysis, a compilation of what they believe occurred and in that document recommendations are made, you should read it in its entirety.

“Derivatives can be a useful tool for highly experienced professionals to manage interest rate risks,” said Chairman Matz. “Our intent is to safely allow more credit unions to use derivatives responsibly as a hedge against interest rate risks. Credit unions that have high interest rate risk exposure on their balance sheet could offset some of the risk if they purchase the right types of derivatives.” Chairman Matz, however, cautioned that several types of derivatives can be extremely volatile, and choosing the right rates to hedge at the right time can be a very risky proposition. “The fact that we have issued two ANPRs on derivatives demonstrates the complexity of this issue,” she said.

The NCUA Board released an earlier ANPR on derivatives transactions by credit unions in June 2011. The comments received on the earlier ANPR are discussed in the ANPR adopted today.

NCUA issued the ANPR with a 60-day comment period.

All open NCUA Board meetings are tweeted live. Follow @TheNCUA on Twitter. Board Action Memorandums and NCUA rule changes are available online at http://www.ncua.gov/about/BoardActions/Pages/Draft Board.aspx.

If the steps taken to handle the crisis were successful and accomplished the ultimate goal of preventing credit unions from failing and maintained the integrity of the industry, then they were the right steps.

If during the course of putting everything back in place some things could have been done better, then let us look upon those discoveries as a learning experience and make corrections going forward.

If we can each do better then by all means let us do so. We must always keep in mind that it is never easy to make hard and unpopular decisions that could be criticized. However, if the decisions are the right thing to do and if the actions taken solve the problems at hand and put corrective measures in place, than we are fulfilling our requirements.