ARLINGTON, Va.–NCUA does not appear it will be inclined to expand the exam cycle to 18 months from the current 12.
As CUToday.info reported here, both NAFCU and the Cooperative Credit Union Association have filed comment letters in recent days outlining reasons why they believe the exam cycle should become 18 months. In response, NCUA Spokesperson Ben Hardaway issued a statement stating that the “current 12-month exam cycle has proven to be both more appropriate and more effective than an 18-month cycle. One of the key lessons from the financial crisis was the need to detect and resolve problems earlier, and GAO and our own Inspector General stressed the importance of that as well in their independent reviews.
“A credit union's financial stability can quickly change, when the period between examinations increases beyond 12 months,” the NCUA statement continued. “For example, the probability of a downgrade in a credit union's CAMEL rating increases. The sooner examiners are able to detect problems—including instances of fraud—the sooner we can work with the credit union on a corrective action plan or minimize potential losses to the Share Insurance Fund. In addition, more frequent onsite contacts help ensure more accurate and reliable Call Report data, and provide more timely oversight, especially for smaller credit unions with limited internal controls.”
NCUA said it recognizes the need to strike the right balance between reducing the burdens associated with examinations and maintaining the safety and soundness of the credit union system.
“That's why NCUA has created the Small Credit Union Examination Program,” the agency’s statement reads. “This program has shortened exams for smaller credit unions of $30 million in assets or less that are financially and operationally sound. NCUA field staff also have the discretion to choose a similarly streamlined, defined-scope examination for a federal credit union with $30 million to $50 million in total assets that received a composite CAMEL rating of 1, 2, or 3 at its last examination. This program reduces the agency's costs by shortening the duration-rather than frequency-of the exam, and allows NCUA to focus on the areas with the greatest potential risk to the system.”
NCUA said that for state-chartered credit unions with assets under $250 million, it relies predominantly on exams conducted solely by state regulators.
“For this group of credit unions, NCUA conducts insurance reviews jointly with the state on a sample basis and where there are factors identified that warrant NCUA involvement in a particular state-chartered credit union,” NCUA said, adding it is also in the process of exploring greater use of technology to improve the quality of risk analyses incorporated into the exam process while also reducing the time spent onsite at all credit unions.”
NCUA indicated it plans to issue a more formal reply to the trade associations in the near future.