Aug. 19, ’16 NASCUS Report

New IRR procedures in pipeline for Q4

New “interest rate risk” (IRR) procedures will be rolled out in the fourth quarter of this year by NCUA, with a “firm implementation” expected in January, NCUA officials said in a webinar sponsored by the agency Thursday. According to Larry Fazio, director of NCUA’s office of examination and insurance, the fourth quarter release “gives everyone a couple of months to absorb and digest” the new procedures. In particular, he said, that timing is “nice for examiners” to get used to the new procedures during the quarter. NCUA expects to release the procedures as a letter to credit unions, along with guidance to examiners. The agency indicated earlier this summer (at the June NCUA Board meeting) that the new procedures were on the way. Indeed, during the webinar, Fazio noted that NCUA examiners have been participating in training for the new procedures over the last several weeks (which is continuing). During the discussion, Fazio acknowledged the input provided by state regulatory agencies (as well as other stakeholders) in developing the new procedures.

With regard to adoption of an “S” component for the CAMEL rating system (with “S” standing for “market sensitivity,” NCUA officials were clear that a timetable for that is still to be determined (and could still be a couple of years off). In any event, when it is ready for debut, Fazio said that the agency will put the new component out for comment. In a “board briefing” at the open meeting in June, agency staff told the board that the benefits of adding the risk sensitivity element include greater clarity, accuracy and transparency in how interest rate risk (IRR) is assessed, and recommended the agency draft and issue a proposal for public notice and comment. At that meeting, agency staff anticipated that the overall process would take a few years. (In a letter to the board in advance of that presentation, NASCUS President and CEO Lucy Ito urged the board to act sooner than later on adding the rating, citing the number of states that have already adopted it.)

Letter from Lucy Ito to NCUA Board members re: S rating in CAMEL


NCUA is neither encouraging nor requiring credit unions to adopt the new “Current Expected Credit Loss” (CECL) accounting standard early in 2019 (as permitted by the standard) – and is reminding examiners that their exam reports should not address CECL until they receive instruction to do so, according to recent correspondence from the agency chairman. In response to a letter from the Credit Union Natl. Assn. (CUNA), NCUA Board Chairman Rick Metsger noted that although staying mute on the early adoption option of CECL, the agency is “evaluating potential issues that may arise if a small portion of the industry early adopts and the majority of the industry waits until 2021.” With regard to examiners, NCUA is reminding them that the current guidance on examining for the adequacy of the loan and lease loss allowance remains in effect until 2021.

Addition of a new capital ratio to exam and/or financial performance reports (FPRs) is also under consideration, Metsger stated, which will “help illustrate that ‘total reserves’ have not changed with CECL implementation.” Metsger stated that NCUA agrees that when the new standard goes into effect, the risk profile of a credit union will not change. “There will be a reallocation between undivided earnings and the allowance for loan and lease loss account initially, and the impact to net income should be neutral over the long term (loan charge-off and standards are not changing), he wrote. CECL – and adapting to it, or not – is a highlighted session at the Oct. 5-7 NASCUS State System Summit in Chicago. The session will be led by Chuck Kelly, Senior Manager, CliftonLarsonAllen (CLA).


Text of NCUA Chairman Rick Metsger’s letter about CECL

Agenda (registration), NASCUS 2016 State System Summit/Oct. 5-7, Chicago


Two changes were announced this week among regulatory leadership in Colorado and Kentucky, both promotions for well-experienced supervisors. Patricia Salazar, now the financial services commissioner for the Colorado Department of Regulatory Agencies (DORA), will become the department’s deputy executive director, effective Monday (Aug. 22). State Bank Commissioner Chris Myklebust, who had previously led the division of financial services from 2006 to 2015, has been appointed acting commissioner of financial services while a search for a permanent successor is underway. Salazar joined DORA last fall, after having served as a deputy commissioner for the California Department of Business Oversight.

Meanwhile, Marni Rock Gibson will be overseeing supervision of Kentucky state-chartered credit unions and banks as the depository division director of the state’s Department of Financial Institutions (DFI). She joined the agency’s securities division in 2009 as a securities enforcement officer; in 2015, she became the Securities Enforcement Branch Manager. Prior to joining DFI, Gibson held positions in the securities and banking industries, where she served as a relationship banker and a branch manager. NASCUS President and CEO Lucy Ito congratulated both Salazar and Gibson on their new positions; “we certainly look forward to working with and supporting both in their new roles,” she said.


With a high of as many as 20 Louisiana credit unions or their branches closed as a result of flooding following heavy rains in the state, local state regulators reported an inundation as bad, if not worse, than any hurricane. According to Commissioner John Ducrest, the heavy rains resulted in flooding that in “some areas worse than any hurricane ever,” with multiple feet over record flood stages, and huge numbers of people affected, he added. Dubbed “the great flood of 2016,” the rains were caused not by a tropical cyclone, but by a slow-moving, low-pressure weather system. As the week wore on, the waters receded and credit unions and branches began reopening (closures were down to 11 by Thursday). Although the flood is waning, assistance is still needed by credit unions. According to the Louisiana Credit Union League, credit union staff are struggling to resume operations, while coping with “devastating personal losses.” To that end: the National Credit Union Foundation has activated “” to raise funds for credit union people in the state affected by the deluge. is an online disaster relief system that allows credit union people to contribute directly in support of other credit union people, according to the Foundation. Additionally (and with an eye toward the upcoming heart of the annual hurricane season), NASCUS has posted a number of disaster recovery resources on its website (look under “Spotlight” on the home page – or see the link below).

LINK: online contribution center

NASCUS disaster recovery resources


Medical marijuana businesses cannot be prosecuted by the U.S. Department of Justice if the enterprises are in compliance with applicable state laws, a federal appeals court ruled this week. The U.S. Court of Appeals for the 9th Circuit, as a result of the ruling, sent back to lower courts 10 cases brought by the DOJ involving medical marijuana dispensaries and growers in California and Washington state, to determine whether the defendants in those cases were in compliance with state medical marijuana laws. The appeals court had been asked to rule on whether the Justice Department had proper authority to press forward with federal drug charges in the cases. The case revolves around Justice’s interpretation of a 2014 law passed by Congress (the Rohrabacher-Farr amendment), which prohibits the department from using federal funds to prevent states from “implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” The DOJ interpreted that law to mean it couldn’t stop state governments from carrying out their medical marijuana laws — not that DOJ couldn’t prosecute cases against individuals or businesses in those states. But the appeals court held up an earlier district court ruling which disagreed with DOJ’s reading. The district court ruled (among other things) that the federal agency’s interpretation “defies language and logic” and “tortures the plain meaning of the statute.” The appeals court noted that “At a minimum, (Rohrabacher-Farr) prohibits DOJ from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by the State Medical Marijuana Laws and who fully complied with such laws.“


Ruling: U.S. 9th Circuit Court of Appeals in U.S. vs. McIntosh


Legislation updating the California credit union charter has taken a big step forward to becoming law in action this week. AB 2274 (supported by the California Credit Union League, CCUL) – was passed 38-0 by the state senate Monday. Among other things, the legislation would: Allow member business loans to exceed a member’s deposits; eliminate board approval of membership applications;  authorize an audit committee in lieu of a supervisory committee; permit non-members to act as the co-borrower, surety, or guarantor of a loan made to a member; redefine which credit union officials’ loans are subject to certain limitations and are required to be reviewed by the board, and; remove unnecessary loan documentation requirements. The bill will next be heard on the California State Assembly Floor before heading to the Governor for a signature.

BRIEFLY: FinCEN names top BSA regulator; directors’ confabs on tap

Overseeing Bank Secrecy Act compliance and enforcement for the Financial Crimes Enforcement Network (FinCEN) will be Thomas Ott, as associate director for the FinCEN Enforcement Division. Ott joined the agency just two years ago, serving previously (for 25 years) as a prosecutor with DOJ. As BSA enforcement chief, Ott will oversee enforcement strategies and supervise investigations, among other things. No doubt, you’ll learn more about Ott and his focus at the NASCUS/CUNA BSA Conference Nov. 13-16 in San Antonio … Two conferences are just around the corner from NASCUS: The Aug. 29 Ohio Credit Union Day in Columbus, Ohio, and; the Colorado Directors Executive Forum, Sept. 27 in Denver. Both sessions focus on current issues among state credit unions, as well as national issues facing the credit union system as a whole. See more at the link below:


NASCUS Fall ‘16 education agenda

BSA Conference details

Summit 2016

Information Contact:
Patrick Keefe, NASCUS Communications, [email protected] or (703) 528-5974

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