Capital Adequacy

The NCUA Board may reclassify a “well capitalized” credit union as “adequately capitalized” and may require an “adequately capitalized” or “undercapitalized” credit union to comply with certain mandatory or discretionary supervisory actions as if it were in the next lower net worth category (each of such actions hereinafter referred to generally as “reclassification”) in the following circumstances:

Except for credit unions defined as “new” under subpart B of this part, a federally-insured credit union shall be classified (Table 1)—

(1) Well capitalized if it has a net worth ratio of seven percent (7%) or greater and also meets any applicable risk-based net worth requirement under §§702.103 through 702.108; or

(2) Adequately capitalized if it has a net worth ratio of six percent (6%) or more but less than seven percent (7%), and also meets any applicable risk-based net worth requirement under §§702.103 through 702.108 below; or

Reclassification based on supervisory criteria other than net worth.

Subject to §702.102(b) and (c), the NCUA Board may reclassify a “well capitalized,” “adequately capitalized” or “moderately capitalized” new credit union to the next lower net worth category (each of such actions is hereinafter referred to generally as “reclassification”) in either of the circumstances prescribed in §702.102(b).

There are six net worth classifications for new credit unions

Submitted by sevans on Thu, 02/12/2015 - 2:58pm

Net worth categories.

A federally-insured credit union defined as “new” under this section shall be classified (Table 6 page 1))—

(1) Well capitalized if it has a net worth ratio of seven percent (7%) or greater;

(2) Adequately capitalized if it has a net worth ratio of six percent (6%) or more but less than seven percent (7%);

(3) Moderately capitalized if it has a net worth ratio of three and one-half percent (3.5%) or more but less than six percent (6%);

For purposes of this part, a credit union must determine its net worth category classification at the end of each calendar quarter using two measures:

(1) The net worth ratio as defined in §702.2(g); and

(2) If determined to be applicable under §702.103, a risk-based net worth requirement

http://www.ecfr.gov/cgi-bin/text-idx?SID=18208fefa74840c64f9baa71245729d...

 

Three primary FDIC examination goals when auditing for Sensitivity risk

Submitted by sevans on Tue, 02/10/2015 - 3:55pm

FDIC examination procedures follow a risk-focused framework that incorporates the Policy Statement's guidelines and efficiently allocates examination resources. Examination scope will vary depending upon each bank's interest rate risk exposure relative to earnings and capital, and related strength of risk management processes. This section of the Manual is intended to provide a thorough background on the interest rate risk management process and examination guidance related to it. It is not an exhaustive study of IRR measurement methods.

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.

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