The NCUA is working to ensure credit unions identify and mitigate certain risks before they threaten the stability of the NCUSIF, NCUA Chairman Debbie Matz said.
“As credit unions have steadily recovered from the financial crisis, NCUA is now able to devote more resources to focusing on the future of the credit union industry,” Matz said in a Supervisory Letter about the exam process in the coming months.
“In 2014, NCUA will be working to ensure that credit unions identify and mitigate forward-looking risks before they threaten the viability of credit unions and the stability of the Share Insurance Fund,” Matz said in the Jan. 10 letter.
“NCUA’s primary responsibility is maintaining the safety and soundness of the credit union system. This involves supervising credit unions and enforcing compliance with rules intended to strengthen them,” her letter said, adding, “Mindful of the burdens that often accompany regulatory compliance, in 2014 we will continue our Regulatory Modernization Initiative and, in addition, are planning to streamline the exam process.”
Cyber-security threats, interest rate risk, private student lending and money services businesses are among the top risks examiners are going to review in their evaluations this year.
“NCUA field staff will evaluate credit unions’ ability to assess and mitigate cyber-security risk and respond to cyber-attacks,” said the letter. “Credit unions of all sizes will be expected to implement appropriate risk-mitigation controls, including vendor due diligence, strong password processes, proper patch management and networking monitoring, to better prevent, detect and recover from cyber-attacks.”
The NCUA called interest rate risk the most significant risk the industry faces right now.
“As rates have risen above record lows, many credit unions’ unrealized gains have swung to unrealized losses. These unrealized losses may foreshadow the actual losses credit unions will face if continuing rate increases eventually result in more compression of net interest margins,” the letter said.
Credit unions’ compliance with the CFPB's new rules will also be examined.
“In the early stages of CFPB’s newly effective mortgage rules, NCUA field staff will take into account each credit union’s good-faith efforts to comply,” the letter said.
“Whether your credit union originates Qualified or non-Qualified Mortgages, field staff will evaluate credit risk, liquidity risk, and concentration risk. The NCUA will not subject a mortgage to safety-and-soundness criticism solely because of the loan’s status as a QM or non-QM. However, credit unions choosing to make non-QMs will need to take into account the potential new market and legal risks,” Matz wrote.
Field staff will expect compliance with several parts of the revised loan participation rule, which became effective Sept. 23, 2013.
By June 30, 2014, credit unions with CUSO relationships will also have to update their written agreements to address the requirements of the NCUA’s new CUSO Risk Transparency rule.
Carrie Hunt, NAFCU’s senior vice president of government affairs and general counsel, predicted that the NCUA’s exam process will be more stringent than ever in 2014.
“We think it bears repeating: Enough is enough. NAFCU will be closely watching the exam process as the year progresses and advocating on behalf of member credit unions for consistent, fair examinations that advance the goal of safety and soundness without hindering credit unions’ ability to serve members,” Hunt said.
CUNA said it is conducting an online National Examinations Survey following this year’s exam. The agency is encouraging member credit unions to participate. The trade organization said it plans to aggregate the data from the survey and use the information as part of its advocacy efforts.