The agencies believe that a well-managed bank will consider both earnings and economic perspectives when assessing the full scope of its interest rate risk exposure. The impact on earnings is important because reduced earnings or outright losses can adversely affect a bank's liquidity and capital adequacy. Evaluating the possibility of an adverse change in a bank's economic value of equity is also useful, since it can signal future earnings and capital problems.

Definition of Interest Rate Risk

Submitted by sevans on Tue, 02/03/2015 - 3:47pm

Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. It results from differences in the maturity or timing of coupon adjustments of bank assets, liabilities and off-balance-sheet instruments (repricing or maturity-mismatch risk); from changes in the slope of the yield curve (yield curve risk); from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar repricing characteristics (basis risk--e.g.

Mandatory elements of a covered credit union’s capital adequacy plan

Submitted by sevans on Fri, 01/16/2015 - 3:30pm

A covered credit union’s (covered credit union means a federally insured credit union whose assets were $10 billion or more on March 31 of the current calendar year) capital plan must contain at least the following elements:

(1) A quarterly assessment of the expected sources and levels of stress test capital over the planning horizon that reflects the covered credit union's financial state, size, complexity, risk profile, scope of operations, and existing level of capital, assuming both expected and unfavorable conditions, including:

Board approval required before submission of capital adequacy plan

Submitted by sevans on Fri, 01/16/2015 - 3:28pm

A covered credit union's (covered credit union means a federally insured credit union whose assets were $10 billion or more on March 31 of the current calendar year) board of directors (or a designated committee of the board) must at least annually, and prior to submission of the capital plan under paragraph (a)(1) of this section:

(i) Review the credit union's process for assessing capital adequacy;

(ii) Ensure that any deficiencies in the credit union's process for assessing capital adequacy are appropriately remedied; and

Annual capital planning. (1) A covered credit union (covered credit union means a federally insured credit union whose assets were $10 billion or more on March 31 of the current calendar year) must develop and maintain a capital plan and submit this plan to NCUA each year by February 28, or such later date as directed by NCUA. The plan must be based on the credit union's financial data as of September 30 of the immediately preceding previous calendar year, or such other date as directed by NCUA.

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