SECU Publishes "Stress Testing" Results For Member-Owners
03 March 2015 - 7:07AM
In concert with new regulatory requirements mandated by the
National Credit Union Administration (NCUA), North Carolina State
Employees' Credit Union has published both its Capital Plan and
internal independent "Stress Test" results for SECU member-owners
on its website. The move provides the members of the $30 billion
Credit Union with access to independent reviews of the Credit
Union's capital adequacy under hypothetical national economic
stress scenarios. SECU's internal stress test results gauge the
Credit Union's ability to maintain sufficient capital while
operating in "adverse" and "severely adverse" economic
environments. NCUA, the deposit insurer of SECU, mandated last year
that all federally insured credit unions with assets exceeding $10
billion must pass the same large bank "stress tests" on an annual
basis, beginning in 2015. The NCUA stress test will be similar to
the Dodd Frank Act Stress Test (DFAST) exercise and will use credit
union data as of September 30, 2014.
The Comprehensive Capital Analysis and Review (CCAR) is an
annual exercise required by the Federal Reserve to ensure that the
largest banks (greater than $50 billion) have "robust,"
forward-looking capital planning processes that account for their
unique risks and that adequate capital remains under three stressed
economic environments. Dodd Frank Annual Stress Testing
(DFAST) is an analytical tool designed to evaluate whether banks
between $10 billion and $50 billion retain sufficient capital under
these same adverse economic circumstances. Tests are hypothetical
and are to reflect the potential impacts on capital when the
economy has high unemployment, low housing prices and unfavorable
interest rates—as found in mild to severe recessions. Large banks
are required to publish the results of their stress tests.
In its most recent tests, SECU used the Federal Reserve Bank
stress test macro-economic model assumptions published in September
2014, as a guide to measure the effects of challenging environments
on Credit Union capital. These same Federal Reserve economic
scenarios are used by the largest U.S. Banks ($10 billion and
greater in assets) and will be utilized by the NCUA in conducting
formal credit union capital stress tests over the next few months.
Under these hypothetical economic variables, capital must remain
above a 5% target level over a 9 quarter projection, even under the
severely adverse scenario.
A graph accompanying this release is available at
http://media.globenewswire.com/cache/27461/file/32265.pdf
Moody's Analytics, an international economic modeling expert,
created six unique "credit loss models" for SECU which calculated
and correlated the stressed economic environments to potential
changes in loan losses, earnings and capital at SECU. Results of
these independent tests show that SECU is strongly capitalized and
able to well withstand even the "severely adverse" economic
environment imposed in the Federal Reserve stress test assumptions.
Additionally, KPMG, a global accounting advisory firm, performed an
extensive analysis to validate and confirm the results of the
Moody's credit loss model projections. KPMG found those model
results to be sound and reasonable.
3. Estimate Impact
of Stress on Capital |
|
Bank Min
Capital Ratios For DFAST/ CCAR 2014 |
Proposed Bank
BASEL III Min Capital Ratios as of 2019 |
SECU Actual
9/30/2014 |
SECU Adverse
Scenario Min over 9 Q's |
SECU
Severely Adverse Scenario Min over 9 Q's |
Tier 1 Leverage
Ratio |
4.00% |
4.00% |
7.61% |
7.55% |
7.71% |
Common Equity Tier 1
Ratio (Risk based) |
5.00% |
7.00% |
11.71% |
11.42% |
11.67% |
Tier 1 Capital Ratio
(Risk based) |
6.00% |
8.50% |
11.71% |
11.42% |
11.67% |
Total Risk Based Capital
Ratio (Risk based) |
8.00% |
10.50% |
12.84% |
12.38% |
12.65% |
NCUA Stress Test
Ratio |
5.00% |
5.00% |
7.55% |
7.42% |
7.61% |
SECU Chief Financial Officer Mike Lord said, "Results of
applying large bank 'stress tests' to SECU balance sheets reflect
that our Credit Union's capital levels currently exceed the capital
requirements imposed on large banks. The voluntary publication of
our internal stress test results provides assurance to the
member-owners of SECU of our ability to withstand severe economic
conditions similar to those experienced in our Country over the
past 5+ years. SECU has also conducted capital level comparisons
using the FDIC and BASEL standards applied to U.S. banks. As the
illustration shows, SECU already exceeds the proposed capital
requirements it must meet by 2019. A strong capital and
liquidity foundation are key elements of a safe and sound financial
institution. We are pleased with our positive results in these new
capital/stress test exercises."
About SECU
A not-for-profit financial cooperative owned by its members,
SECU has been providing employees of the State of North Carolina
and their families with consumer financial services for 77 years.
The Credit Union also offers a diversified line of financial
advisory services including retirement and education planning, tax
preparation, insurance, trusts, estate planning and investments
through its partners and affiliated entities. SECU serves nearly 2
million members through 254 branch offices, 1,100 ATMs, 24/7
Contact Centers and a website, www.ncsecu.org.
CONTACT: Leigh Brady, EVP - Organizational Development
Office: 919-807-8347
Mobile: 919-327-8869
leigh.brady@ncsecu.org