NCUA examiners and regional officials didn’t adequately follow up on documents of resolution and 45% of the 74 credit unions that failed from 2008-2010 were regularly given CAMEL 1 and 2 ratings, the agency’s Office of Inspector General concluded in a report.
The report found that the agency’s Office of Examination and Insurance “performed limited DOR monitoring and that monitoring in each region varied based on their individual policy.”
As a result, of the 74 failed credit unions , five regularly received CAMEL 1 and 2 ratings despite receiving “repeat DOR items that examiners did not properly follow up on through stronger supervisory actions, which we believe helped contribute to the credit union’s failure.’’
The report also found that 18 of these credit unions had problems so severe that they were closed or merged within a year after being downgraded. Also, 14 of those credit unions had a total of 55 unresolved DORs during the last examination in which they received a CAMEL 1 or 2 rating.
According to the report, as of yearend 2010, the agency had more than 26,000 unresolved DOR items, encompassing 63% of all federally insured credit unions. And 23% of the unresolved items related to management issues that had been cited as a cause of the failure of many credit unions.
To avoid a recurrence of these problems the Office of Inspector General recommended developing a standard DOR monitoring process; requiring a written response from credit unions on how they are resolving problems spelled out in a DOR; and ensuring the agency’s regional staff takes stronger actions when problems aren’t corrected.
NCUA Executive Director David Marquis wrote in response that the agency is developing a National Supervision Policy Manual to replace regional standards with national ones and the requirement to get a written response from credit unions on DORs is included in the manual. He also noted that since the financial crisis, the agency has increased the frequency of examinations and this allows the agency’s examiners to “significantly mitigate risks in credit unions on a continuing basis.”
NCUA's Inspector General has issued a spate of reports this year regarding failures and natural person and corporate credit unions, pointing blame at management as well as the NCUA.