Guest Opinion: Dual Regulatory System Works for Troubled CUs
I disagree strongly with the premise behind the article, “Does NCUA Disdain the Dual System?” (Aug. 8 issue, page 1). It’s important to set the record straight.
The NCUA works closely and cooperatively with state regulators, appropriate to our role as the federal insurer for state-chartered credit unions.
State supervisory authorities often avail themselves of NCUA training, hardware, software and other resources as they conduct examinations. Especially when state regulatory budgets are tight, state authorities often request and receive NCUA assistance in conducting exams for state charters.
The NCUA has successfully worked together with state supervisory authorities through these difficult economic times to prevent credit union failures, especially in economically devastated states.
In particular, we were able to prevent the failures of seven CAMEL 4 and 5 credit unions with more than $1 billion in assets each. Several of those credit unions were state chartered, but the NCUA was able to intervene because the state authorities concurred on their troubled condition.
In some cases, NCUA and the state authority wrote very prescriptive letters of understanding and agreement, holding troubled credit unions accountable to reduce their risks by specific deadlines.
In other cases, the NCUA approved new CEOs with expertise in areas of risks that were threatening troubled credit unions.
In the most extreme cases, the state authorities or the NCUA conserved troubled credit unions, and an NCUA-appointed management team immediately ceased high-risk operations.
I am pleased to report that in all of these cases, the credit unions are stabilized. They are no longer in imminent danger of failing.
However, what would have happened if the state authorities had not concurred on their troubled condition? If those troubled credit unions had failed, they could have cost all federally insured credit unions–state and federal charters–hundreds of millions of dollars in insurance premiums.
That’s why the NCUA board proposed a clarification to the troubled condition rule and published it for public comment. (The comment period is open until Oct. 1.) Our intention is to protect all credit unions against potential losses to the NCUSIF.
The proposed rule would resolve the rare situations where NCUA and the state supervisory authority differ on a CAMEL rating that determines whether a state-chartered credit union should be classified in troubled condition (CAMEL 4 or 5).
Specifically, in less than 4% of all cases, a state supervisory authority rates a state-chartered credit union a CAMEL 3, but NCUA rates it a CAMEL 4. Under the current NCUA rule, the state authority’s CAMEL 3 rating prevails, and the state-chartered credit union is not classified in troubled condition.
When that happens, NACU cannot delegate responsibility for possible NCUSIF losses and still responsibly adhere to our congressional mandate to limit losses. Both the Government Accountability Office and the NCUA’s Inspector General concluded that the NCUA should act sooner to prevent losses as soon as a troubled condition is detected.
In addition, overall NCUSIF performance metrics and accounting for loss reserves are not as precise as they could be because the fund is not specifically accounting for every credit union that NCUA rates in troubled condition.
Conversely, if the NCUA rates a state-chartered credit union a CAMEL 3, but the state authority rates it a CAMEL 4, NCUA will re-classify the credit union as in troubled condition.
The NCUA’s internal policies dictate that in order for to NCUA to specifically determine a state-chartered credit union is in troubled condition, the NCUA must conduct an on-site inspection and consult with the state authority.
The practical effect of enacting this rule as proposed is that when the NCUA rates a state-chartered credit union a CAMEL 4 when the state authority rates it a CAMEL 3, NCUA would be able to invoke enhanced supervisory actions to protect all credit unions from losses. That’s the bottom line.
This proposed rule is not intended to limit any current authority of, or in any way to disparage, my state supervisory authority colleagues.
Nonetheless, as the insurer, NCUA has a responsibility to minimize losses to the NCUSIF that result from failures–failures paid by all federally insured credit unions, including state charters as well as federal charters.
The management and supervision of troubled credit unions are critical factors to their survival. NCUA does not discriminate between troubled state or federal credit unions–and neither should our rule.
Debbie Matz is chairman of the NCUA.
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