June 17, ’16 NASCUS Report

NCUA takes first step toward ‘S’ in CAMEL

The first step toward installing into the CAMEL rating system an “S” component – which stands for “market sensitivity risk” – was taken by the NCUA Board Thursday, but there’s still a long way to go, perhaps even a few more years. In a “board briefing” at the open meeting this week, 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. Agency staff anticipated that the overall process will take a few years. (In a letter to the board in advance of this week’s meeting, NASCUS President and CEO Lucy Ito urged the board to act sooner than later on adding the rating; see next item).

In a release following the meeting, NCUA pointed out that it assesses interest rate risk as part of the liquidity rating. Federal banking supervisors, however (the agency release stated), already include an “S” in the rating system, as do 16 state credit union regulators, with five additional state credit union regulators are working to adopt this approach. (NASCUS provided NCUA with those statistics). The release also included a comment from NCUA Chairman Rick Metsger, stating “the time is ripe to make a formal proposal,” adding, “if we do this, it will require NCUA to reprogram several internal systems and make revisions to supervision programs and existing documents, but the benefits appear to outweigh those costs.” Additionally, the board discussed a new IRR measurement, with staff noting that it expects to send a Letter to Credit Unions and attach to it excerpts of the exam scope questions and the guidance sent to examiners. The letter is expected to be sent in late July or early August. In other action, the board approved technical amendments to Part 705 of its rules and regulations regarding the Community Development Revolving Loan Fund, and; agreed to a technical change to Part 747 of its rules and regulations related to civil money penalties and adjustments for inflation.

NCUA release summarizing June 16 board meeting


Two days before the NCUA Board members discussed the “S” rating, NASCUS’ Ito urged them in a letter to move forward on the new component, citing the 16 states that have already adopted it. “We again note that the separation of the ‘S’ component does not require a credit union to develop additional management system enhancements where market risk is already appropriately identified, measured, monitored and managed as part of the ‘L’ component,” Ito wrote. The NASCUS leader pointed out that in states that have adopted CAMELS (16 total, with five more considering it), regulators and credit unions report positive outcomes with nearly no additional regulatory burden. She noted that by rating the “L” and “S” components separately—rather than in a combined component—state regulators have been able to provide better information to credit unions to clearly delineate analysis between liquidity risk and interest rate-risks. “From a credit union perspective, an ‘S’ rating is no longer masked by a stronger ‘L’ rating nor is an ‘L’ rating ‘dinged’ by a weaker ‘S’ rating; conversely, an ‘L’ rating is no longer masked by a weaker ‘S’ rating nor is an ‘S’ rating  ‘dinged’ by a weaker ‘L’ rating,” she wrote. During the briefing, both Metsger and Board Member J. Mark McWatters cited the NASCUS letter, and both indicated an interest in talking to Ito more about state regulators’ experience with the “S” rating.

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


As the two-member agency board was getting ready to meet this week, a key congressional leader unveiled his plans for increasing the size of the board to five members (the current limit is three; one seat on the board is unfilled) – a long-time goal of NASCUS. Following up on his announcement last week of the “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs” or CHOICE Act, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) Wednesday released an 18-page “summary” of his proposal, which is aimed at replacing the Dodd-Frank legislation passed in the wake of last decade’s financial crisis. The provision about the NCUA Board is under a bullet focusing on creating “accountability in Washington” by harmonizing “the bureaucratic structures of federal financial regulatory agencies so they all reflect multiple, bipartisan viewpoints with independent members.”

NASCUS’s Lucy Ito offered to work with Hensarling to expand the impact of his proposal – by requiring that at least one of the seats on the board be designated for a candidate who has served as a state credit union supervisor. “Increasing the size of the board from three to five members would enhance the board’s deliberative process, expand its collective expertise, and improve the efficient administration of NCUA business,” Ito said a statement. “And designating one of those seats for a candidate with state credit union supervisory experience would streamline supervisory coordination between state and federal regulators, minimize redundancies and overall strengthen the dual-chartering system,” she said. She added that NASCUS will work with Hensarling and urge him to consider including the state supervisor provision in his proposal as it moves through the legislative process.

In addition to the NCUA Board membership provision, the CHOICE act also includes provisions that:

  • Call for an annual report by NCUA detailing the overhead transfer rate and providing a rationale for any amounts the agency proposes to use from the NCUSIF;
  • Allow for an 18-month exam cycle for certain credit unions;
  • Place the federal financial institution regulatory agencies in the appropriations process “so that Congress can exercise proper oversight.”

Summary of CHOICE Act

Lucy Ito press statement on five-member NCUA Board proposal


Meanwhile, NCUA’s Metsger also announced this week that the agency will hold a briefing in October on its proposed 2017-18 budget – which will include an opportunity for the public to comment on the agency’s spending plan. Metsger said the budget briefing would be “more comprehensive than the briefings previously held by the agency” including, for example, release of more details on the proposed budget before the briefing, “so stakeholders can review and analyze the information before they participate.” The NCUA Chairman said that all those who participate in the briefing “will be heard.” But he added that the board still has the responsibility, under the law, to make the final decisions. Last month, the NCUA Chairman announced a comprehensive review of its examination and supervision process. In a release, NCUA also pointed out that the NCUA Chairman has created a working group to field stakeholder suggestions and report its recommendations on the exam review to the Board in September.

Press release: NCUA to hold budget briefing


The NASCUS State System Summit may be about 14 weeks away, but a key date for $100 savings on registration is coming up much sooner: July 31. Registrations received by that date qualify for the discount. The agenda for this year’s event is already taking shape – including sessions on FinTech, CECL (see “Briefly” below), Campaign 2016, interstate branching, commercial lending –and much more. Our program brings together credit union regulators and practitioners for mutual exchange and dialog. It’s a rewarding opportunity to take part in educational workshops, insightful discussions and networking events geared specifically toward CEOs, state regulators and industry leaders – and to take advantage of a discount!

2016 NASCUS State System Summit/agenda, registration, more

BRIEFLY: CECL released, arbitration agreements summary, Cybersecurity

The long-awaited accounting standards update on “current expected credit losses” (CECL) was released Thursday by the Financial Accounting Standards Board (FASB), with an effective date after Dec. 15, 2020 for most credit unions. The new guidance from FASB requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts … A summary of the “arbitration agreements” proposed rule by the CFPB has been posted on the NASCUS website, outlining a number of separate “comment requests” from the bureau … There is still plenty of time to register for the 2016 Cybersecurity Symposium Aug. 1-2 in Chicago – but hurry! Slots are filling fast.

FASB accounting standards update (ASU) on credit losses
FASB press release on “credit losses” ASU
NASCUS Summary: CFPB proposed rule on arbitration agreements
2016 Cybersecurity Symposium (Chicago, Aug. 1-2), registration

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

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