ALEXANDRIA, Va.–NCUA’s Office of Inspector General has recommended the agency add an “S” to its CAMEL Rating System to better reflect “sensitivity” to market risk.
The recommendations follow a self-initiated audit by the OIG that sought to determine whether NCUA’s interest rate risk policy and procedures help to effectively reduce IRR, and what action(s) NCUA has taken or plans to take to identify and address credit unions with IRR concerns.
Noting that the agency has taken numerous steps to identify and address credit unions with interest rate risk concerns, including the establishment of an IRR working group to develop examination-based IRR assessment tools, the OIG said it is too early to evaluate the effect of recent changes and it therefore could not determine whether NCUA’s IRR policy and procedures have effectively reduced interest rate risk.
However, it said it has determined that NCUA “may not be effectively capturing IRR when assigning a composite CAMEL rating to a credit union. NCUA currently assesses sensitivity to market risk under the “L’ in its CAMEL rating. However, combining sensitivity to market risk with liquidity may understate or obscure instances of high IRR exposure in a credit union.”
The report recommends that the “L” in CAMEL reflect liquidity factors only.
“The addition of an ‘S’ to its CAMEL Rating System to capture and separately assess a credit union’s sensitivity to market risk should improve the NCUA’s ability to accurately measure and monitor interest rate risk,” the IG’s report continued.
A copy of the full report is available in CUToday.info’s Open Vault here.