ARLINGTON, Va.– Federally insured, state-chartered credit unions face a unique burden of facing both state and federal exams, but that burden can be mitigated when state and federal regulators improve efficiencies, conserve resources and coordinate and harmonize where possible, NASCUS has told NCUA in a comment letter on the agency’s “Exam Flexibility Initiative.”
In the letter, NASCUS touched on six areas, including:
Examination Cycle
NASCUS said it welcomed the retirement of “NCUA’s self-imposed requirement to conduct annual examinations of all FISCUs with assets of $250 million or greater regardless of the credit union’s condition or the timing of the last state examination, and called on the agency to further retire its mandatory annual examination policy.
Extended Examination Cycle Eligibility
“In the banking sector, well managed institutions with assets of less than $1 billion and CAMELS composite ratings of 1 or 2 are eligible for 18 month cycles,” NASCUS wrote. “According to FDIC, nearly 5,000 of its 6,051 insured commercial banks are eligible for the extended examination cycle. NCUA should adopt the same standard for credit unions.”
Appeals Process
NASCUS said that “in order to foster an environment that provides for enhanced regulatory discretion in supervision at the federal level while maintaining industry’s confidence that decisions are not arbitrary and capricious, NCUA should enhance its supervisory appeal process…A first step to improve the appeal process would be for NCUA to publish information, in the aggregate, about how many appeals are filed each year, what the subjects of the appeals were, and the dispositions of those appeals.”
Benefits of a Variable Approach
“Much like the interactions between regulators and credit unions, the interactions between NCUA and its state partners must balance consistency with flexibility,” said NASCUS. “NCUA and SSAs should develop standardized protocols to govern the national relationship, but not commit to a rigidity of policy that forecloses the ability to acknowledge that specific circumstances might necessitate a varied approach among the states.”
Use of Technology
Stating that the leveraging of technology can reduce supervisory burden on credit unions, reduce the wear and tear of examiners’ road time, improve analytical abilities, and preserve limited agency budgets, NASCUS called for the “creation of secure portals for transmission of information between credit unions and regulators would allow for increased off-site review. In some cases, centralized specialists could review entire portfolios, providing the analysis to the on-site examiner for validation and follow-up. Not only would this reduce on-site disruption to credit unions, it would likely improve consistency of analysis. Several states have begun development of secure portals, and we urge NCUA to coordinate with states to ensure maximum system compatibility.”
Call Report Reform
NASCUS said any discussions of changes to the examination program are incomplete without discussing a comprehensive overhaul of the 5300 Credit Union Call Report. “We understand that NCUA is undertaking an independent review of its 5300 Call Report. NASCUS will submit detailed comments in response to that separate initiative,” the association said. “However we felt it important to note for the record here that decisions related to the structure and scope of NCUA’s examination presence in FISCUs are inexorably linked to off-site monitoring and information gathering. Efficiencies gained in the Call Report process create greater flexibility for regulatory allocation of resources and reduce regulatory burden for credit unions.”