Johnson Directs NCUA Staff to Review Examination Matrix

WASHINGTON-During remarks last week at CUNA’s GAC, NCUA Chairman JoAnn Johnson announced that she has asked agency staff to review the use of the matrix in determining credit unions’ CAMEL ratings. “Some of you have expressed concern over the use of the matrix in determining individual elements of the CAMEL rating,” Johnson said. “To clarify, by policy, an examiner can deviate from the matrix.” She explained that the matrix is intended to offer examiners guidance, “not dictate the rating.” “Therefore,” the chairman followed up, “the examiner should be making the determination of the CAMEL elements based on the data and entire circumstances presented by the examination. However, as has been noted to me, occasionally that may not be the case.” Considering NCUA’s move toward more risk-focused examinations, the matrix may not fit in. “The matrix is not risk-focused; it relies on ranges of numbers without taking into account the complexity of the institution,” she stated. “The matrix is not dynamic or forward-looking.” Johnson added that she has asked staff to review its relevance and whether it should be modified or eliminated. “Our responsibility is to consider the entirety of the safety and soundness issues, policies and procedures before assigning a CAMEL rating. The individual components of the CAMEL should not be dictated by the combined experiential data gathered from other credit unions.” Johnson also took time to discuss her recently released proposal for risk-based Prompt Corrective Action, which is under consideration for inclusion in the Credit Union Regulatory Improvements Act. “Meaningful capital standards are important in protecting the federal insurance funds, taxpayers, and the stability of America’s financial system,” she said. “However, because of the higher leverage requirements in the current system placed on credit unions, inequities are created for credit unions with low-risk balance sheets, and it limits NCUA’s ability to incorporate behavioral incentives related to higher risk activities.” When CURIA was first introduced in the 108th Congress, the risk-based PCA system was not as detailed as Johnson’s current proposal and the banks jumped all over it. However, “A well-designed system would alleviate regulatory concerns by not penalizing low risk activities and by providing credit union management with the ability to manage their compliance through adjustments to their assets and activities,” Johnson said. She added that a risk-based capital framework for credit unions “would better achieve the objectives of PCA and is consistent with sound risk management principles.” “If adopted,” Johnson concluded of her proposal, “the result will be a balanced and credible approach to making credit unions PCA system aptly robust, yet not unduly burdensome or constraining. It’s time for comparability with the capital standards for FDIC-insured institutions.” [email protected]