NCUA Delivers a Win with Small Credit Union Exam Streamlining, But Why Stop There?

NCUA is often the target of criticism, concern, and overall disappointment from credit union leaders. As the regulator, NCUA is an easy target. Credit unions are dealing with exams every year and have plenty of opportunity to see NCUA come in and criticize some aspect of their operations. NCUA also promulgates new regulations that can add to credit unions’ compliance burden. Long story short, it’s easy to get frustrated about today’s regulatory environment and NCUA will bear the brunt of that frustration.

But we should also recognize that NCUA has been making some great strides toward a better regulatory framework. For starters, the agency changed its approach to Troubled Debt Restructuring that has made TDRs—a reality in today’s economy—more effective for credit unions.

What else? They have essentially tabled two proposed regs—one to regulate CUSOs and the other to limit loan participations—while it does further evaluation. NCUA’s own analysis found that the CUSO regulation would require an inordinate amount of money and resources to implement and maintain. Many in the system believe the loan participation regulation would create more risk as credit unions try to replace well-established participation channels due to the proposed thresholds. The NCUA Board has constructively leveraged the system’s feedback and their own cost analysis to reconsider these proposed regs. That’s a healthy dynamic.

Here in New Jersey we recently witnessed first-hand NCUA’s willingness to work constructively with credit unions. A survey of our New Jersey credit unions found many of our members were not clear on the basics of their exam, including exam personnel, scheduling, appeals process, exit interview, etc. This was causing confusion and uncertainty in the exam process. NCUA agreed to work on developing a pre-exam email to CUs that provides more details on a CU’s coming exam, including the all-important list of exam personnel and supervisors. That was welcome news to our member CUs. Improving communication with CUs can go a long way towards creating a more efficient exam process.

NCUA’s latest positive move came with the launch of its new Small Credit Union Examination Program for CUs under $10 million. NCUA will spend less time and examiner resources examining small CUs with (in NCUA’s words) a “record of solid performance.” This may include CAMEL 1, 2 and 3 CUs. According to NCUA, these well-run small CUs don’t present a significant risk to the insurance fund. Those who don’t think NCUA is moving forward simply need to look at this latest program. This is great progress.

But why stop with small credit unions? Is risk just about size? There are plenty of examples of large CUs that present low risk to the insurance fund based on their scope of business and their “record of strong performance.” Having a “strong record” is not about size. There are great examples in all asset categories.

There are large credit unions that don’t engage in offerings that NCUA deems risky. Loan participations, indirect lending, student loans, and MBLs are not in themselves more risky than anything else a CU is doing if they are managing them properly, but NCUA does focus on these areas more closely because of system loss history or growing concentration. That’s a sound approach. Not all larger CUs offer these products or use these strategies. Or they do offer them and have years of solid performance. They clearly have the tools and knowledge to be in these product lines. Many mid- and large-sized CUs have longtime leadership with a “solid record of performance”, proven management teams, skilled boards, and years of good results. Shouldn’t NCUA take the same approach with exam time and hours at these larger CUs as it is with the small CUs under its new initiative?

Allocating resources effectively has never been more important to NCUA given the high number of new examiners it has in its ranks. These examiners often need 3-5 years of seasoning to be truly up to speed on the system. Taking a hard look at exam hours across the asset spectrum would undoubtedly show NCUA can further tweak how it deploys examiner resources.

NCUA took a tremendous first step with its new Small Credit Union Examination Program for CUs under $10 million. Imagine if it eventually expanded this approach to larger CUs? Not only would agency resources become more focused on the areas of greatest need, but those CUs with a “record of solid performance” would be able to spend more time and resources on keeping their solid records going strong.

Paul Gentile is the president/CEO of the New Jersey Credit Union League, the state trade association for New Jersey’s credit unions. New Jersey is home to 215 credit unions serving 1.2 million credit union members and with a combined $10 billion in assets. Gentile has helped re-energize the New Jersey Credit Union League by launching new branding efforts, programs, and political action. Prior to his role with NJCUL, Gentile served as the editor and publisher of Credit Union Times, a national weekly publication covering the credit union movement. He is a well-know figure in the credit union industry and has written hundreds of stories on all aspects of the industry.