Sensitivity to market risk (the S component) addresses the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution's earnings or capital. For most institutions, market risk primarily reflects exposures to changes in interest rates. The S component focuses on an institution's ability to identify, monitor, manage and control its market risk, and provides institution management with a clear and focused indication of supervisory concerns in this area.

Other risks factor into Liquidity Risk and must be taken into account

Submitted by sevans on Tue, 02/10/2015 - 3:39pm

Bankers and examiners must understand and assess how a bank’s exposure to other risks may affect its liquidity. The OCC defines and assesses eight categories of risk. In addition to liquidity, these risk types include credit, interest rate, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive—any product or service may expose a bank to multiple risks—and a real or perceived problem in any area can erode a bank’s liquidity position or affect its funding costs, thereby increasing its liquidity risk.

NCUA and other regulators have issued new rules to ensure that the industry is operating in a safe and sound manner.  In 2014, NCUA examinations will assess credit unions’ compliance with the following new rules and regulations: 

  • Loan Participation Rule
  • Ability-to-Repay and Qualified Mortgage Standards
  • Credit Union Service Organizations (CUSO) Rule

As credit unions have steadily recovered from the financial crisis, NCUA is now able to devote more resources to focusing on the future of the credit union industry.  In 2014, NCUA will be working to ensure that credit unions identify and mitigate forward-looking risks before they threaten the viability of credit unions and the stability of the Share Insurance Fund. 


Credit unions should prepare to meet the new IRR requirements

Submitted by sevans on Tue, 02/03/2015 - 4:01pm

What should credit unions do to prepare?

We (NCUA) encourage you to review the new IRR rule on the NCUA website located at

If your credit union holds between $10 million and $50 million in total assets, you should determine whether the new rule applies to you as determined by your SIRRT ratio on the most recent Financial Performance Report.

As noted in the rule preamble, FICU (federally insured credit unions) exposure to IRR from first mortgage loans and long-term investments grew substantially during the last interest-rate cycle. Indeed, aggregate exposure of FICUs by the SIRRT ratio increased from 199% at year-end 2005 to a peak of 271% in March 2011. We expect exposure to remain high for some time because of the longer-term nature of assets in the SIRRT numerator.