Effective in April of this year, NCUA will switch its exam framework from CAMEL to CAMELS. This means that interest rate risk sensitivity will be measured separately from liquidity.

Sensitivity to interest rates is the new S. Until now, it has been examined as part of the L—liquidity. This change brings NCUA into alignment with the FFIEC, as well as the Utah Department of Financial Institutions, which both already use CAMELS

The no-brainer prediction is that this will result in increased focus on interest rate risk (IRR), since now credit unions will be scored on a 1-5 scale solely on interest rate sensitivity. In a recent webinar NCUA indicated that NCUA examiners are not required to perform any additional procedures, and credit unions won’t have to add to their management procedures or practices.

NCUA stressed repeatedly that this change should not lead to additional work for credit unions.

While this may be true in theory, I struggle to see how this will not result in more work for credit unions. To riff off of the old saying, what gets measured gets done, and what gets measured and reported gets done—or else!

The mere existence of a separate score for IRR brings more focus to IRR. This will cause credit unions to think more deeply about their IRR management, and lead credit unions that may be a little weak in that area to seek out better solutions. If this was not true, why would NCUA bother making the change at all? It must see value in that change, which translates into less risk to the insurance fund, and likely more focus and therefore work for credit unions.

Which isn’t necessarily a bad thing. IRR is real. Credit unions need to manage it. The important part is that NCUA recognize that not every credit union is so complex that it needs a lot of very fancy tools and a full-time team dedicated to the cause. Only time will tell if the NCUA delivers on its promises.