WASHINGTON—Before NCUA adds an “S” to its CAMEL rating system, credit unions deserve a “detailed explanation” of the changes as they relate to the examination system, according to a comment letter filed with the agency by NAFCU.
As CUToday.info reported, the board approved the proposed rule to add the “S” component – which stands for sensitivity to market risk – to the CAMEL rating system during its January meeting. In addition, the proposal includes redefining the “L” component – which stands for liquidity risk – to distinguish it from the new “S” component. The changes are intended to enhance transparency, allow the agency and state regulators to better distinguish between the two components, and align with bank regulators, according to NCUA.
“NAFCU is concerned that changing the rating system will disrupt the examination process of credit unions, making it overly burdensome for some credit unions to comply,” wrote NAFCU Regulatory Affairs Counsel Aminah Moore. “For credit unions that already maintain separate policies to address these risks, this change will likely result in simple streamlining and transparency in the examination processes, as the NCUA has indicated. Conversely, credit unions that do not already maintain separate policies, often smaller institutions, may be required to create new policies and train staff on procedures to monitor them to comply with the proposed rule.”
Clarification Needed
Moore called on the agency to offer additional detailed information and clarity on the components, including how these risk components are defined and evaluated, and allow credit unions the opportunity to offer feedback. Moore further stated the proposed descriptions for the “L” and “S” components are the same as those outlined in the Uniform Financial Institution Rating System (UFIRS), which has been approved by the other banking regulators and many state banking authorities.
In the letter, Moore recommended NCUA keep its rating descriptions consistent with the rating descriptions for the “L” and “S” ratings used by other banking agencies by adopting the UFIRS in its entirety. Should the NCUA board modify the descriptions, Moore urged the agency to provide credit unions with ample notice and the opportunity to comment on the changes.
Moore also recommended NCUA establish meaningful feedback mechanisms for both examiners and credit unions during the implementation phase of any change.