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Interest Rate Risk

Interest rates rose significantly across the yield curve during 2022, elevating interest rate risk (IRR) and the related exposure to earnings and capital. This sharp rise in rates has amplified market risk because a credit union’s assets and liabilities do not reprice equally, potentially impacting net economic values and credit unions’ projected earnings.

In September 2022, the NCUA issued Letter to Credit Unions 22-CU-09, Updates to Interest Rate Risk Supervisory Framework, and Supervisory Letter 22-01, Updates to Interest Rate Risk Supervisory Framework, updating the NCUA supervisory framework for IRR.

With the April 2022 addition of the Sensitivity to Market Risk, or “S,” component to the CAMELS rating system, the agency has formalized the focus on IRR as a specific rating category separate from liquidity risk.

High levels of IRR can increase your credit union’s liquidity risks, contribute to asset quality deterioration and capital erosion, and put pressure on earnings.

Well-managed credit unions are prudent and proactive in managing IRR and the related risks to capital, asset quality, earnings, and liquidity. As such, examiners will review your credit union’s IRR program for the following key risk management and control activities:

• Key assumptions and related data sets are reasonable and well documented.
• The credit union’s overall level of IRR exposure is properly measured and controlled.
• Results are communicated to decision-makers and the board of directors.
• Proactive action is taken to remain within safe and sound policy limits.

Additional references for IRR are in the Examiner’s Guide under Workpapers and Resources In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.

I can help if you are currently dealing with or thinking about:

An examination that did not go as well as you hoped

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Responding to an NCUA or state examination

Assessing a letter to you from your Regional Director or State Regulator

Seeking NCUA or State Regulator approval for an action you desire to take

Assessing actions you will take in response to a Document of Resolution

Receiving a Letter of Understanding and Agreement

Document of Resolution (DOR) Issues

Examiner Findings

Supplementary Facts

CAMEL Code Downgrades

Capital Adequacy

Asset Quality

Management Code

Earnings

Liquidity Code

Sensitivity Code

Commercial Lending MBL Issues

Interest Rate Risk (IRR)

Net Economic Value (NEV)

Secondary Capital

Subordinated Debt

Exit Conference / Joint Conference Challenges

Fair Lending Exam Issues

Field of Membership (FOM) Expansions

CECL Issues

Appeals

Reputation Risk

Net Worth Restoration Plans (NWRP)

Credit risk

Interest rate risk

Liquidity risk

Transaction risk

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NCUA's Large Credit Union Program

Transition to the Office of National Examinations and Supervision (ONES)

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Supervisory Committee