Times are Changing and NCUA, CUs Must Keep Up
ALEXANDRIA, Va. -- If you always do what you've always done you'll always get what you always got.
That was the message NCUA Chairman JoAnn Johnson carried with her to CUNA's Governmental Affairs Conference last week from the agency and to credit unions.
She began her remarks with: "If you have always done it that way, it is probably wrong." That was from inventor Charles Kettering in the earlier half of the last century and Johnson said she believes it applies to NCUA and credit unions today--Prompt Corrective Action, the examiners' Matrix, and lastly bylaw enforcement.
Regarding PCA reform, the chairman said, "We have the necessary experience with the current system, in place since 1998, and have made a solid recommendation to Treasury and Congress advocating for a risk-based system which preserves the leverage system and provides comparability with the standards for FDIC-insured institutions. This will allow credit unions to better manage safe and sound growth and provides improved identification and measurement of risk in each institution." She added that the current system can leave low-risk institutions with unnecessarily idle capital and encouraged credit unions to promote this reform during their visits to Capitol Hill.
Secondly, she noted that NCUA is considering throwing out the examiners' matrix used for compiling CAMEL ratings. The matrix uses hard benchmarks that do not necessarily apply in today's credit unions and in the modern risk- focused examination. "It's not dynamic or forward looking," Johnson stated.
She noted the first big step last August with NCUA's letter to credit unions addressing the arbitrary 1% return on assets in the matrix in order to qualify for a CAMEL 1 rating. "Each credit union's earnings level must be evaluated relative to net worth needs, financial and operational risk exposures, the current economic climate, and your strategic plans," Johnson said.
She added, "We are in the final phase of evaluating CAMEL updates necessary to eliminate the CAMEL matrix." Johnson said the agency would be communicating with the industry prior to implementing a change like this to the examination process and examiners will be trained for consistency.
"We do not anticipate the update negatively impacting a credit union's ratings; however, if a component or overall code changes up or down, examiners will be required to support and explain the change," she said.
Finally, Chairman Johnson said, the agency will be reconsidering whether to incorporate the Federal Credit Union Bylaws in regulation as they once were for better enforcement tools (See related story, page 1-34). The issue has arisen during fights over credit union conversions to mutual savings banks.
"That represents a change with a very real implication for the nation's credit union members, and it is something that anyone with any interest in protecting consumers cannot let stand without considering remedies," Johnson concluded. --firstname.lastname@example.org