Credit risk review guidance helpful, should not be mandated

December 17, 2019

While proposed interagency guidance on credit risk review systems generally reflects sound practices, CUNA noted in a comment letter to NCUA Monday that it is not appropriate to require credit unions to adhere to the guidance as if it was a mandate. The agencies are proposing to update guidance adopted in 2006 to reflect the current expected credit losses (CECL) methodology.

Specifically, the proposed guidance describes a broad set of practices that can occur within an institution to form a credit risk review system. As the nature of such systems varies based on the size, complexity, loan types, risk profile and risk management practices of an institution, the proposed guidance highlights principles that can be scaled to an institution’s loan activity.

CUNA’s letter acknowledges the guidance and efforts that went into making it applicable to a wide variety of institutions, but also notes concerns that there are instances where its applications to credit unions is not feasible or appropriate.

“In general, we believe the Proposed Guidance describes a broad set of practices that an institution—including most credit unions—can use to form a credit risk review system that is consistent with safe-and-sound lending practices… we urge the NCUA to recognize the nature of the Proposed Guidance as simply guidance that credit unions can look to when establishing and maintaining credit risk review systems,” the letter reads. “We believe it would be inappropriate to examine credit unions for strict adherence to the exact guidance as outlined in the proposal.”