Proposed Rule Summary
Prepared by the NASCUS State Regulatory Affairs Department
October 25, 2013
National Credit Union
12 CFR Part 702
Administration
Capital Planning and Stress Testing
_____________________________________________________________
The National Credit Union Administration (NCUA) has issued a notice of proposed rulemaking
that would require federally insured credit unions with assets of $10 billion or more to develop
capital plans and undergo annual stress tests conducted by the NCUA. These requirements
would be added to 12 CFR Part 702 as an added Subpart E, “Capital Planning and Stress
Testing.” FISCUs are required to comply with Part 702 pursuant to section 216 of the Federal
Credit Union Act and Part 741.3 of NCUA's Rules and Regulations.
Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandated
annual stress testing and capital plans for bank holding companies with total consolidated assets
of $50 billion or more, and nonbank financial institutions designated as systemically important
by the Financial Stability Oversight Council (FSOC).1 Bank holding companies with total
consolidated assets between $10 billion and $50 billion and savings and loan holding companies
and state member banks with total consolidated assets of more than $10 billion will undergo
annual company-run stress tests, as defined by their primary financial regulatory agency, and
must submit and publish the results of the report. These tests are designed to ensure that large
and systemically important institutions have sufficient capital to absorb losses during adverse
economic conditions.
Although credit unions were not explicitly included in the Dodd-Frank mandate, NCUA has
nevertheless proposed a rule to apply a stress testing framework to federally insured credit
unions with assets of $10 billion or more. NCUA points out that the four credit unions in this
category have assets totaling nearly ten times the balance of the National Credit Union Insurance
Fund, and that safe and sound capital planning in these institutions is therefore essential to the
health of the credit union system as a whole.
NASCUS will prepare a comment letter and will circulate it for comment by December 16, 2013.
Please feel free to share your thoughts with us in the interim.
Comments are due to NCUA 60 days after publication in the Federal Register.
1
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010).
Rule at-a-Glance:

Requires federally insured credit unions with $10 billion or more in total assets on March
31 of a given calendar year to submit an annual capital plan to NCUA, based on the credit
union’s financial data as of the previous September 30.

NCUA will notify the credit union of the acceptance or rejection of its capital plan by
June 30. If rejected, the credit union would have 30 days to re-file. If the capital plan is
not approved by NCUA by September 30 of that year, the credit union will be subject to
supervisory action by NCUA.

NCUA will consult with state supervisory authorities before taking any action on the
capital plan of a federally insured state-chartered credit union (FISCU).

The credit union’s capital plan must contain, at a minimum, analysis of sensitivity to
changes in the variables used in preparing the capital plan, net economic value of the
credit union using interest rate shocks of +/- 300 basis points, and impact of credit risk to
capital under unfavorable economic conditions, with and without concurrent unfavorable
interest rates.

NCUA will conduct annual stress tests on each covered credit union using baseline,
adverse, and severely adverse scenarios. A description of each of those scenarios will be
provided by December 1 of the calendar year, and the stress test will be conducting using
data as of September 30 of that year. NCUA will provide the results of the stress test by
May 31 of the year following the September 30 “as of” test date.

Stress tests will evaluate a credit union’s ability to absorb losses over a 9-quarter horizon.
The minimum target stress test capital ratio is 5%. If the stress test reveals that the credit
union would be unable to maintain the 5% minimum at any point during the 9-quarter
horizon, the credit union must provide a capital enhancement plan within 60 days of
receipt of the stress test results.

NCUA will consult with state supervisory authorities before taking any action based on a
stress test of a federally insured state-chartered credit union (FISCU).

NCUA has specifically requested comments on whether or not the results of the stress
tests should be made public.