NCUA Supervisory Focus for 2013

Technology – Credit unions are adopting new technology to meet evolving member service needs and to leverage automation for increased efficiencies.  Remote deposit capture, online banking, mobile banking, and social media are just a few examples of new technologies credit unions are increasingly employing to serve members.  If your credit union adopts such new technologies, you need to implement controls commensurate with the risks involved, in particular ensuring the security and stability of these service delivery channels.

Internal Controls – A sound system of internal controls is essential to ensure your credit union is operated in a safe manner, consistent with your board’s approved policies and procedures.  An effective system of controls deters and mitigates the risk of fraud, errors, and other operational problems.  Also, you need to provide for a strong supervisory committee and audit function that is commensurate with the size and complexity of your credit union.

Interest Rate and Liquidity Risk – Examiners will evaluate your credit union’s ability to mitigate interest rate and liquidity risk, especially where there are high levels of long-term assets funded by short-term, less stable funds.  This evaluation will include how your credit union has modeled its earnings, capital, and liquidity performance under stressed scenarios.

Examiners will also review your credit union’s contingency funding plans in light of changes in the corporate credit union network and Central Liquidity Facility access.  Where the CLF was the credit union’s sole or primary source of contingent liquidity, your credit union needs to act to re-establish a reliable contingency funding arrangement.  Your credit union’s actions in this regard will be a key consideration in examiners’ evaluation of the liquidity component (“L”) of the CAMEL rating.  Credit unions can draw from the principles contained in the 2010 Interagency Policy Statement on Funding and Liquidity Risk Management, which focused attention on several aspects of a sound liquidity management program, including corporate governance, documented strategies, risk tolerances, and reporting.¹

Concentration Risk – Too much of a “good thing” can still lead to problems.  When there is limited diversification of assets, examiners will evaluate your credit union to determine if excessive levels of concentration risk exist and work with management to incorporate strategies to mitigate this risk.²

Less Established Products – Some credit unions invest in less established or complex products, such as private student loans or investments associated with credit union-funded employee benefit programs that would otherwise be impermissible.  If your credit union invests in less established or complex products, examiners will verify whether your credit union has the appropriate expertise and risk-mitigation controls over such products with which credit unions have historically had limited experience.

Member Business Lending (MBL) – NCUA plans to issue a supervisory letter to add clarity to the process and expectations for MBL rule waiver requests.  This letter will address, in particular, waivers for personal guarantees and blanket waivers versus individual loan waivers for aspects of the MBL rule.  The guidance will also focus on appropriate underwriting and credit monitoring systems for MBLs.

Credit Ratings – NCUA will issue follow-on guidance for examiners and credit unions on complying with the final rule (required by the Dodd-Frank Wall Street Reform and Consumer Protection Act) replacing the use of credit ratings with alternative standards to assess the creditworthiness of securities and money-market instruments.³

Troubled Debt Restructurings (TDRs) – Based on the final rule which relieved regulatory burdens of TDRs, NCUA will provide additional guidance for examiners on examining for compliance with the rule’s requirements and the credit union’s accounting practices related to TDRs.⁴

CU Online Profile Contact Information – CU Online will now contain information on how to contact the NCUA supervisory examiner and examiner assigned to your credit union.  We are also adapting the system to provide an electronic notice to you if this contact information changes.

Pre-examination Letter – The AIRES program examiners use to conduct exams includes a new template for the pre-examination planning letter that will include information on how to contact the NCUA supervisory examiner and examiner assigned to your credit union, as well as identifying any other NCUA personnel that are expected to participate on the exam.

Examination Report Cover Letter – More comprehensive information on all formal and informal appeal options available to credit unions is now included in the exam report cover letter.  The cover letter also includes contact information for your NCUA supervisory examiner and examiner.