NCUA’s Net Economic Value (NEV) Supervisory Test is used to assess a credit union’s interest rate risk (IRR) to the Share Insurance Fund.

In a higher rate environment, the NEV Test is presenting challenges for many credit unions that have not seen significant changes in their balance sheets but have seen their risk shift from low/moderate to high or even edge toward extreme.

Based on stakeholder input, the Association has suggested that the modeling be adjusted to account for the evolving risk and balance sheet strategies implemented by credit unions. The following recommendations have been shared with the NCUA:

• Apply different assumptions for different non-maturing deposit (NMD) types
• NMD Assumptions should change as market conditions change
• Consider testing a range of duration/sensitivity levels to see what thresholds cause credit unions to breach risk categories
• Credit unions that are (1) over a specific asset threshold and (2) can demonstrate expert knowledge and sound NMD measurement processes should not be subject to the NEV Test

NCUA Regional Director, Eastern Region, John Kutchey will discuss IRR, and other topics, during today’s (August 30) Virtual Town Hall hosted by the Association at 2:00 pm. Register here to participate.