NCUA’s Proposed Troubled Condition Rule Troubles State Regulators
The NCUA’s proposed rule that would allow it to declare state chartered, federally insured credit unions in “troubled condition” has drawn criticism from NASCUS and a state regulator.
The rule, introduced NCUA’s July 24 Board Meeting, would define a state chartered, federally insured natural person or corporate credit union as troubled if either the state or federal regulator assigns it a CAMEL or CRIS code 4 or 5 in either the financial risk or risk management categories.
That troubled designation would allow NCUA additional supervisory authorities including a requirement that the credit union notify the NCUA before making changes to senior management or volunteer positions.
NASCUS President/CEO Mary Martha Fortney said her organization is very concerned about the preemptive nature of the proposed rule, and intends to file formal comments as well as “continue to express our concerns to the NCUA Board."
“Through successive preemptive rule making, NCUA continues to dilute the dual chartering system with little regard for the consequences and implications on the state credit union system. That NCUA proposes to further diminish the role of state agencies in the supervision of FISCUs is troublesome from a broad perspective,” Fortney said.
According to the proposed rule, state and federal regulators disagree on CAMEL ratings only 2% to 4% of the time. However, NCUA Chairman Debbie Matz said as stewards of the share insurance fund, the regulator needs increased supervision for any credit unions it feels deserves a CAMEL 4 rating.
Staff Attorney Steve Widerman told the board during the July 24 meeting that the rule isn’t meant to imply a lack of confidence in ratings assigned by state regulators. Rather, it aims to create a single, uniform definition for troubled credit unions.
Fortney, however, disagreed.
"State regulators are the primary regulator for FISCUs and this proposal appears to presume that the agency's judgment is superior to that of its state regulator partners,” she said.
Orla Beth Peck, supervisor of credit unions for the Utah Department of Financial institutions, said the proposed troubled condition rule, when combined with recent NCUA rules on CUSOs and loan participations, have had negative impacts on the state dual chartering system.
Peck, who is currently chairs the NASCUS board, said states find value in individuality, while the NCUA sees more value in conformity. However, Peck added that the difference “will probably always be a contention between state regulators and the NCUA.”
The 20-year Utah chief credit union regulator said she also realizes federal regulators are under pressure by Congress to prevent another financial crisis.
“All federal regulatory agencies are a little bit more sensitive than they have been in the past because we’ve been through this big financial meltdown,” she said. “They’ve been beaten up a little bit, all of us have, and I think that makes everyone a little bit more sensitive or aggressive.”