NASCUS Addressing State Impact of Troubled Condition Proposal

A special message from Mary Martha Fortney, President and CEO
August 2012

During the National Credit Union Administration’s (NCUA) July Board meeting, the NCUA board voted unanimously to publish a notice of proposed rulemaking to amend the definition of "troubled condition" in §701.14 and elsewhere in NCUA’s regulations.
The proposal would allow the NCUA to determine if a federally insured state-chartered credit union (FISCU) is considered in "troubled condition," a change from current long standing protocol which is based on the state regulator's rating. (The Federal Register notice can be found here. NASCUS has prepared a summary of the proposal here.)

Currently, NCUA defines "troubled condition" as a credit union that has received special assistance or a credit union that has been rated a CAMEL 4 or 5. For federally insured state-chartered credit unions, the CAMEL rating that determined whether the credit union met the regulatory definition of "troubled condition" was that rating given by its state regulator.  For corporate credit unions, the rules uses the CRIS rating. It is the use of the state regulator rating that NCUA proposes changing.

NCUA's proposal would define a FISCU to be in troubled condition when either the state regulator or NCUA assigns it a composite CAMEL rating of 4 or 5 (or CRIS rating for corporates). In effect, the proposed rule allows NCUA to substitute its judgment over that of the state regulatory to designate a FISCU as in troubled condition. As the federal share insurer, NCUA clearly has certain authorities and obligations with respect to FISCUs. However, the rule as proposed is troubling. Before preempting state authority, and unsettling long-standing protocol, NCUA should clearly identify a material weakness in that protocol. In the this case, NCUA fails to provide convincing evidence of a need to make a change.  Changes of this nature should be proceeded by detailed dialogue with state regulators.  Furthermore, the proposal leaves questions unanswered as to the its equitability to FISCUs in which NCUA was not present for examination.

NASCUS is committed to the safety and soundness of the credit unions system and to an effective partnership between state and federal regulators.  We will be discussing this proposal with NCUA to better understand its concerns and to ensure NCUA understands our concerns.  NASCUS will also submit formal comments. Comments are due Oct. 1, 2012. I welcome your feedback on this important issue at marymartha@nascus.org.