State CAMEL Override Approved
ALEXANDRIA, Va. — The NCUA approved a controversial final rule during its Jan. 10 board meeting that would allow the federal regulator to declare a state-regulated, federally insured credit union to be in “troubled condition”.
Previously, that authority was only granted to state regulators. However, Staff Attorney Steve Widerman said while presenting the final rule to the board that the NCUA discovered a trend in discrepancies between state and federal CAMEL ratings and felt that to protect the share insurance fund it needed the new power. The troubled condition designation allows regulators greater supervisory powers, including the ability to approve changes in volunteers or executive managers, and is triggered when a credit union’s CAMEL rating slips from 3 to 4.
The proposed rule, when introduced in July, generated criticism from trade organizations concerned it meant the dual chartering system would take a hit. In particular, NASCUS, which represents state regulators, was most concerned about what the move meant for state regulatory authority.
NASCUS President/CEO Mary Martha Fortney said immediately after the board meeting that she still does not agree that new the rule was necessary. But said she was pleased to see that the NCUA added a provision to the final rule that requires the federal regulator to first make an on-site contact with the credit union before officially overriding a state regulator’s authority and declaring it troubled.
NCUA examiners often conduct remote reviews of state examiner’s reports, and when they do disagree with state examiner’s CAMEL coding, it’s often without first visiting the credit union in person. Fortney said NASCUS suggested an on-site visit in its comment letter, and she’s pleased the NCUA listened. She stressed that the NCUA’s on-site review would be conducted in consultation with state regulators.
Fortney said she was also pleased Widerman and NCUA Board Chairman Debbie Matz stressed that the federal regulator did not intend for the rule to challenge state regulator authority. Widerman said the rule was not “an authority contest” and stressed that the NCUA’s new ability to override state regulator CAMEL codes only applies to the troubled condition status.
Matz said during the meeting she was troubled by the perception the rule would diminish the dual chartering system, and countered that it instead levels the playing field between state and federal regulators, granting the NCUA equal authority in protecting the share insurance fund.
Fortney said while she appreciated the sentiment, she will reserve judgment regarding how the rule may threaten state regulator authority until she sees how the rule is implemented.
During the meeting, the NCUA board also approved an increase in the maximum asset threshold for a small credit union to $50 million, an increase over the regulator’s proposed rule of $30 million. The increase will allow credit unions with fewer than $50 million in assets to seek assistance from the NCUA’s Office of Small Credit Union Initiative and provides an exemption from the federal regulator’s interest rate risk and risk-based capital rules. However, the rule does not change the NCUA’s small credit union exam schedule, in which examiners visit credit unions with fewer than $10 million in assets less frequently. That initiative, introduced just one year ago, will be reviewed this year. According to the board action memorandum, the Office of Examination and Insurance will determine sometime this year whether to create a different exam program for credit unions with assets between $10 million and $50 million.
Other approved items at the meeting were an increase in the amount of the time a credit union make take to accept the NCUA’s low-income designation offer to 90 days, a technical rule change that puts federal deposit insurance coverage for Treasury accounts on par with other depository accounts, approval of the NCUA’s 2013 strategic goals and a briefing on the interagency final rule increasing appraisal requirements for higher priced and higher risk mortgage loans.