WASHINGTON-During remarks last week at CUNA's GAC, NCUA ChairmanJoAnn Johnson announced that she has asked agency staff to reviewthe use of the matrix in determining credit unions' CAMEL ratings.“Some of you have expressed concern over the use of the matrix indetermining 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 examinersguidance, “not dictate the rating.” “Therefore,” the chairmanfollowed up, “the examiner should be making the determination ofthe CAMEL elements based on the data and entire circumstancespresented by the examination. However, as has been noted to me,occasionally that may not be the case.” Considering NCUA's movetoward more risk-focused examinations, the matrix may not fit in.“The matrix is not risk-focused; it relies on ranges of numberswithout taking into account the complexity of the institution,” shestated. “The matrix is not dynamic or forward-looking.” Johnsonadded that she has asked staff to review its relevance and whetherit should be modified or eliminated. “Our responsibility is toconsider the entirety of the safety and soundness issues, policiesand procedures before assigning a CAMEL rating. The individualcomponents of the CAMEL should not be dictated by the combinedexperiential data gathered from other credit unions.” Johnson alsotook time to discuss her recently released proposal for risk-basedPrompt Corrective Action, which is under consideration forinclusion in the Credit Union Regulatory Improvements Act.“Meaningful capital standards are important in protecting thefederal insurance funds, taxpayers, and the stability of America'sfinancial system,” she said. “However, because of the higherleverage requirements in the current system placed on creditunions, inequities are created for credit unions with low-riskbalance sheets, and it limits NCUA's ability to incorporatebehavioral incentives related to higher risk activities.” WhenCURIA was first introduced in the 108th Congress, the risk-basedPCA system was not as detailed as Johnson's current proposal andthe banks jumped all over it. However, “A well-designed systemwould alleviate regulatory concerns by not penalizing low riskactivities and by providing credit union management with theability to manage their compliance through adjustments to theirassets and activities,” Johnson said. She added that a risk-basedcapital framework for credit unions “would better achieve theobjectives of PCA and is consistent with sound risk managementprinciples.” “If adopted,” Johnson concluded of her proposal, “theresult will be a balanced and credible approach to making creditunions PCA system aptly robust, yet not unduly burdensome orconstraining. It's time for comparability with the capitalstandards for FDIC-insured institutions.” [email protected]