NCUA’s latest Letter to Credit Unions (22-CU-02) provides credit unions with an update on the agency’s examination programs. It also covers NCUA’s supervisory priorities for 2022.

NCUA Connect & MERIT

In 2021, the NCUA trained all NCUA and state regulator users on its new examination platform, the Modern Examination and Risk Identification Tool (MERIT) and associated systems.

Credit unions will use the new MERIT platform and its related systems during their examinations. NCUA allocated time for examiners to work with credit unions on how to use these new tools during 2022.

Recording of Official Meetings

As noted in the NCUA’s Examiner’s Guide, “credit unions may record their meetings” (exit conferences and joint conferences). The officials should ask for the examiner’s concurrence before recording the meeting, a request to which the examiner should normally agree.

Credit unions should refer to local, state, and federal laws, and consult with legal counsel prior to recording conversations, especially as it relates to any requirements to obtain consent from the parties involved.

Also consistent with the Examiner’s Guide, “the examiner has the discretion to request that a copy of the recording or a transcript be sent to the examiner.”

CAMELS Update

NCUA finalized a rule in October that added the “S” component (for Market Sensitivity) to the existing CAMEL rating system and redefined the “L” component, thus updating the CAMEL rating system to CAMELS.

Adoption of CAMELS allows the NCUA, state supervisory authorities, and federally insured credit unions to achieve greater transparency in the ratings and clearly distinguish between liquidity risk in the “L” component and sensitivity to market risk captured in the “S” component, according to NCUA.

The final rule is effective for examinations starting on or after April 1, 2022.

The evaluation of the “S” component reflects the credit union’s exposure to changes in its earnings and capital position arising from changes in market prices and interest rates. Effective risk management programs include comprehensive interest rate risk policies, appropriate and identifiable risk limits, clearly defined risk mitigation strategies, and a suitable governance framework.

In evaluating the “L” component to determine the adequacy of a credit union’s liquidity profile, examiners will consider the current and prospective sources of liquidity compared to funding needs. The adequacy of liquidity risk management is also evaluated relative to a credit union’s size, complexity, and risk profile.