MALBOROUGH, Mass. (8/20/15)--The Cooperative Credit Union Association (CCUA) is asking National Credit Union Administration Chair Debbie Matz to return to an 18-month examination cycle saying, in part, that less frequent exams will help examiners concentrate on problem areas.
CUNA has made similar points in letters to the U.S. Congress. Most recently, CUNA wrote to members of the House Financial Services subcommittee on financial institutions and consumer credit in advance of Matz’s testimony at its hearing July 23.
CUNA and the league both urged the NCUA to refine the cycle of its examinations to be more consistent with banks’ examination cycle, which allows certain banks to be examined every 18 months.
CCUA President/CEO Paul Gentile wrote, “I believe that moving exams to an 18-month cycle does not threaten safety and soundness and will not add significant or systemic risk. In reality, it will lower risk because an extended cycle allows examiners to spend resources in credit unions that need additional attention.” The association letter was sent Tuesday to the agency.
NCUA has “wide latitude” to set the examination cycle for federally insured credit unions, according to Ryan Donovan, CUNA chief advocacy officer.
“The fact of the matter is that in this case, the Federal Credit Union Act is much less prescriptive than comparable banking statutes, giving NCUA quite a bit more flexibility in terms of extending examination cycles,” Donovan said. “This is something that we frequently raise with NCUA staff.”
The NCUA implemented a risk-based examination program in July 2001, which stipulated that “credit unions posing minimal or no risk to the National Credit Union Share Insurance Fund may receive an examination twice every three years.”
The financial crisis, however, led the NCUA board to implement a 12-month examination cycle in 2009, as a way to detect minor issues before they blossomed into something bigger. The NCUA currently examines all federally insured credit unions with assets in excess of $250 million on an annual basis, regardless of CAMEL rating, risk profile or frequency of examination by a state regulator.
“NCUA’s expertise in modeling and data analytics have proven that sufficient resources exist that can be utilized to spot trends. Since 2009, the agency strengthened its examination modernization efforts. Of importance are efforts to modernize AIRES, its technology platform used to conduct exams that feature a portal to enable examiners and credit unions to exchange information.
"The goal of the AIRES modernization project is to facilitate more up front interactions with credit unions electronically so that the exam process is much more effective and efficient,” he said.
Gentile commended the agency for its "excellent work in helping the credit union system through the recessionary period starting in 2008," but added that the top priority now is regulatory relief: "A more efficient, data driven exam cycle is a true form of regulatory relief."
He added that the federal agency must also better leverage the presence of the state regulators.
The league letter also focused on the rising Overhead Transfer Rate (OTR) and the impact that a longer exam cycle can have on lowering the OTR. CUNA has supported a number of examination fairness bills, including the Financial Institution Examination Fairness and Reform Act (H.R. 1941/S. 774), which has been introduced in both houses. H.R. 1941 was passed by the House Financial Services Committee July 30.