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<p>WASHINGTON – Some credit unions that would be otherwise eligible for deferred exams under the NCUA’s risk based exam schedule program may not have their exams deferred in order to keep some of NCUA’s examiners occupied, according to Robert Blatner, NCUA’s Region VI Director and administrator of the risk based exam pilot program for large credit unions in his region. Speaking at a break-out session of CUNA’s 2002 GAC, Blatner explained that that even though the risk- based exam approach would result in fewer exams and thus fewer examiners generally; the agency had decided to allow attrition to cull the ranks of examiners and not to terminate any. In effect this means that NCUA has temporarily too many examiners for the risk-based exam program, Blatner said, and those examiners were going to have to do exams even if particular exams would otherwise perhaps have been deferred under a smaller workforce. Credit unions with CAMEL ratings of 1 or 2 and net worth of at least 7% and who meet a host of other criteria are eligible for the deferred exams, Blatner said. Despite the somewhat daunting criteria list, Blatner estimated that 80% of credit unions currently meet the criteria for the deferred exams. He also estimated that fully implementing the risk-based exam program would take up to two years. He anticipated Region VI, which includes Alaska, Guam, Hawaii, Washington, Oregon, California, Nevada, Idaho, Wyoming, Utah and Montana, would have 50% of its credit unions in the risk- based exam schedule program in 2003 NCUA will train all examiners in the risk-based approach in a series of four training sessions this August. The training will last a week for each session and NCUA will strive to make sure that each class has identical instructors and curricula to ensure uniform training across the exam force, Blatner said. Blatner said there was a “common misperception” among credit unions that, under the risk-based exam schedules, “they wouldn’t see an examiner for 18 months” but Blatner corrected that idea. NCUA’s exam staff would have access already to a great deal of data from credit unions in, for example, their 5300 Call Reports, Blatner said. Examiners would study that data and, if they found something that looked odd or if there had been some external event that impacted credit unions, examiners could call or visit credit union management to check on how the credit union is handling that particular item. Based on the experiences of his credit unions in the pilot program, Blatner anticipated that most credit unions would “enjoy” the new exam approach and appreciate all the ways it differed from the previous exams. Tracy Bombarger, a program officer with NCUA’s Office of Examination and Insurance, picked up that message and actually predicted that those credit unions which were deferred under the risk-based exam schedule would feel jealous of credit unions which were examined under the new system. Bombarger, who has been partially responsible for developing the new risk-based exam itself, told the session that the new exam approach differed fundamentally in the degree of planning the agency put into each exam. Where, under the old system, examiners would show up at a credit union and begin checking almost everything from board minutes to loan files to the general ledger, the new exam format required the examination staff pay attention to how the credit union handled seven defined areas of risk before they came to the credit union, she said. This means that new exams will be more targeted, she said, and credit unions will see the results of the increased prior planning in a more efficient exam. The areas of risk of interest to examiners are credit risk, interest rate risk, liquidity risk, transaction or fraud risk, compliance or regulatory risk, strategic risk and reputation risk, she added. Bombarger also said the new exams would differ in that they would focus more on the processes and procedures the credit union management had in place to handle these various risks, rather than a comprehensive examination of the credit union. Examiners will talk to credit union management early in the exam about the policies and procedures the credit union has in place to identify, measure, monitor and report the seven areas of risk, she said. The examiners would then talk to other staff and perhaps perform a spot check to ascertain that the policies and procedures are in fact being carried out, she said. She emphasized this risk-based approach effectively tailors the exam to the credit union, noting that examiners might spend a greater percentage of their time checking on some things in a smaller credit union that lacked the staff to adequately address one of the risk areas or which needs some help setting up its policies and procedures. Marcia Sarrazin, Director of the NCUA’s Division of Supervision, told the session that the examiners would work with credit unions to make sure they understood what the new exams meant and that, by and large, state supervisory agencies were coming along with the program. She also said that NCUA had a “target date” for getting a letter to credit unions out explaining more about the risk-based exam and schedule of March 31 and that she anticipated the new exams would start to be performed in credit unions nationwide at the end of August 2002.</p>

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