When consumers think of stress tests for financial institutions, the first thoughts most likely center on the biggest members of the banking industry. However, new plans could require the nation's biggest credit unions to undergo similar examinations. The National Credit Union Administration has issued a new proposal for credit unions with assets that exceed $10 billion to regularly determine how economic variables and interest-rate shocks could impact their stability.
"Stress tests are forward-looking measures," Debbie Matz, chairwoman of the NCUA Board, said when the proposal was first announced. "The results will serve to alert credit unions to just how far their capital would fall under extreme stress scenarios, enabling them to make the necessary adjustments to protect against losses."
Deposits at credit unions are insured in a similar way that deposits at banks are protected. However, Matz says that the entire insurance fund currently sits at just more than $11 billion. With that figure, it's easy to see how major losses at a big credit union could severely impact the ability to provide protection to other depositors.
Big banks already conduct stress tests, and the results are available to the public, but Matz and the NCUA have not determined if the results of credit union tests would be disclosed. The Credit Union National Association, or CUNA, an advocacy group that represents about 90 percent of the country's not-for-profit financial institutions, has expressed concerns about public disclosure of the results.
In addition to questions surrounding what these tests would look like, another large issue looms -- cost. According to unofficial estimates included in a release from CUNA, arranging the tests could carry a potential tab of $4 million in the first year alone. That's quite expensive, considering that there currently are only four credit unions with assets that cross the $10 billion threshold.
What do you think of the proposal? Should big credit unions be subjected to stress tests like banks are?