June 10, 2016

State CUs increase share of total assets in 1Q

Now with just a shade under 48% of all assets, federally insured, state-chartered credit unions (FISCUs) increasedAssets shares their share of total assets in federally insured credit unions in the first quarter of 2016 by 3.2%, according to numbers released by NCUA last week. The state-chartered credit unions as of March 31 held $595.1 billion in total assets, according to the NCUA numbers, which were gleaned from quarterly call reports filed by both state and federally chartered credit unions. Total assets for all federally insured credit unions, the NCUA numbers show, are now $1.24 trillion (which reflects a quarterly growth of just above 3%). The state-chartered credit union asset growth slightly outpaced that of the federal charters, which expanded assets by 2.8%, the NCUA numbers show (despite the fact that the number of FCUs is 62% of all federally insured credit unions). State-charters also posted an overall net worth ratio of 10.75%, and a return on average assets of 0.78%.

The state-chartered credit unions expanded their member rosters by 1% to 48.9 million memberships (about 47% of all members of federally insured credit unions). Federal credit unions grew a tad slower, expanding by 0.9% (to 54.8 million). Memberships in the two charters of credit unions now total 103.7 million – up just under 1% from the end of 2015. The state-charters also expanded their share of total loans, now at 48.7% (from 48.6%), but saw their share of total deposits stay relatively steady (at 48.6%). The number of federally insured credit unions continues to fall, however (by 1.1% -- or 67 credit unions in the first quarter), the majority of them (43) FCUs.

The growth of state-chartered credit unions is a tribute to both the management and the regulatory environment of the state CU system, said NASCUS President and CEO Lucy Ito. “Growth, financial strength and stability, and focus on what drives the local economy are the hallmarks of the state system – which are all fostered by management and regulators throughout the system. Congratulations to the state system overall, and here’s looking to a continued trend as the year goes on.”

NCUA CU data summary for federally insured CUs, 1Q ‘16


A second “board briefing” – this one on interest- rate risk supervision and adding an “S” to the CAMEL rating system – is planned for next Thursday’s open meeting of the two-member NCUA Board in Alexandria, Va. The panel held its inaugural “board briefing” – an initiative of Chairman Rick Metsger – at its May meeting. A report of the agency’s Office of Inspector General (OIG) on Nov. 13 recommended that the agency add an “S” for market-risk sensitivity to its CAMEL rating system, and revise the “L” to reflect only liquidity factors, because the current system “may not be effectively capturing interest-rate risk (IRR) when assigning a composite CAMEL rating to a credit union.” However, in the report, the OIG also pointed out that any change to the two components cannot come before the end of 2018, “because the process involves regulation changes, reprogramming of multiple data systems, and revisions to examination policies and procedures.” A number of states already use the “S” component – including Colorado, Connecticut, Maine, Massachusetts, Michigan, Mississippi, Montana, Nebraska, Nevada, New Hampshire, Texas, Utah, Vermont and Washington. At least another five states are considering the addition of the “S.” In other action, the NCUA Board will also consider a proposed rule on Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule, and an interim final rule on Part 747, Statutory Inflation Adjustment of Civil Money Penalties.


OIG-15-11, “Review of NCUA’s Interest Rate Risk Program”

Board agenda for June 16 NCUA Board meeting


Noting that its intent is to strengthen examination and monitoring of credit unions by state supervisory authorities and itself, NCUA has set Aug. 1 for input on its effort to “modernize data collection for regulatory oversight of credit unions,” reflecting a 60-day “request for information” period. The agency, in its Federal Register notice this week, stated it is conducting a comprehensive review of the two vehicles it uses to collect information for regulatory oversight: the 5300 Call Report and the Form 4501A Profile. “The overarching goal is modernizing content to (i) strengthen on-site examination and off-site monitoring by NCUA and state supervisory authorities, (ii) facilitate richer comparisons of institution and industry trends by other parties, and (iii) minimize the burden on reporting FICUs,” the agency wrote in its notice. Additionally, the agency noted that it “plans a diverse outreach to inform modernization efforts with both general and specific input from all interested stakeholders.” The request for information, NCUA noted, “represents the first step.”

More specifically, the agency stated that the RFI announces NCUA’s desire for “assistance in identifying the interrelated considerations and challenges associated with improving the Call Report and Profile.” It added that Input would be gathered through the open public review-and-comment process via workshops, focus groups, online surveys, and more. Target participants, the agency stated, include regulators, credit unions, leagues, trade associations, industry-related persons, and academics.

Federal Register June 7 notice/NCUA request for information


Extending the exam cycle for “well-managed and financially sound credit unions” and improving the supervision process at NCUA are two areas of “quality improvement” being targeted at NCUA, Board Chairman Rick Metsger wrote this week in separate letters to the chairman and a member of the House Financial Services Committee. In writing to committee Chairman Jeb Hensarling (R-Texas) and member Frank Guinta (R-N.H., who wrote with other House members this spring to former Chairman Debbie Matz urging a return to an 18-month exam cycle for well-run credit unions), Metsger highlighted his priorities, “especially those related to quality improvement.” He noted that his proposal last month to remove the requirement that all federally insured state-chartered credit unions with more than $250 million in assets, and every federal credit union, be examined within each calendar year is the first step of his “Exam Flexibility Initiative.” He added that this initiative will explore “how NCUA can best implement an extended examination cycle for well-managed, financially sound credit unions. After careful study and public outreach, we hope to announce broader changes to NCUA’s examination program in the next few months.”

More specifically, Metsger argued for regulation, rather than legislation, to facilitate an 18-month cycle. “Moving to extend the exam cycle through the regulatory process is the most expeditious way to address this important issue,” he wrote. He noted that statutory changes that would lock the agency into an exam schedule could decrease the agency’s flexibility to respond to a new economic crisis and result in increased losses to the insurance fund. He told Guinta that a working group at the agency is now looking at all aspects of the supervision process, with a September report of recommendations to the board expected. He added he plans to “move expeditiously on these recommendations this fall with the expectation that they will be in place for the 2017 exam cycle.” However, on Thursday, Guinta introduced a bill that would require NCUA to establish an exam cycle of at least 18 months for well-run credit unions having assets of $1 billion or less.


Also this week, Financial Services Committee Chairman Hensarling outlined legislation he intends to pursue that would make sweeping changes to the Dodd-Frank laws passed in the wake of the last decade’s financial crisis – which would include (among many other things) a provision calling for an 18-month exam cycle for certain credit unions. Other provisions of Hensarling’s “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs” (CHOICE Act) – likely to be introduced later this month – would subject all federal financial regulatory agencies to bi-partisan commissions, and place the agencies in the appropriations process “so that Congress can exercise proper oversight.” (NCUA, for example, is outside of the appropriations process; nearly all of the funds for the agency’s operations come from federal credit union operating fees and from the “overhead transfer” from the NCUSIF). Additionally, all federal financial regulators would be required to conduct a detailed cost-benefit analysis of all proposed regulations. Additionally, the CHOICE Act would change the name of the CFPB to the “Consumer Financial Opportunity Commission (CFOC),” replace the single director with a bipartisan, five-member commission subject to congressional oversight and appropriations, and repeal authority to ban bank products the bureau considers “abusive” and its authority to prohibit arbitration. While it’s unlikely the proposal will progress in the limited time left in this Congress, it is expected to greatly influence the House Republican agenda in the next Congress.

Executive summary/CHOICE Act)


In the meantime, the House Appropriations Committee Thursday marked up and voted out a bill that would bring CFPB’s funding under the congressional appropriations process and change the bureau’s leadership structure from a single director to a five-member commission. The bill (which funds the Treasury Department, among other agencies) would also require the CFPB to report to Congress about how the bureau uses its authority to exempt “any class” of entity from individual rulemakings, require CFBP to address any plans to revisit past exemptions and how it plans to use that power in the future. The measure was also amended with a provision barring CFPB from using its recently proposed payday lending rule until the bureau reports to Congress on the entities most affected by the rule, as well as alternative tools available for consumers to access credit.


Cyber security is in the news again this week, with the FFIEC issuing a statement warning that payment networks and interbank messaging have become recent targets of cyber attacks aimed at originating unauthorized transactions. In its statement, the FFIEC noted that active management of risks associated with those functions is necessary to prevent financial institution losses and compliance risk. The agency noted that financial institutions should review risk-management practices and controls related to information technology systems and wholesale payment networks, including risk assessment; authentication, authorization and access controls; monitoring and mitigation; fraud detection; and incident response.

Cyber-attack prevention is among the many topics to be explored at the 3rd Annual NASCUS/CUNA Cybersecurity Symposium, set for Aug. 1-2 in Chicago. The two-day session also looks at such security topics as Six Things You Can Do Right Now to Improve Your Information Security; Choosing the Right Cybersecurity Risk Assessment Tool; Building a Cyber Threat Intelligence Capability; Cybersecurity, Anti-Money Laundering, and Identity Theft Red Flags; Cybersecurity and AIRES; Is it Safe?: Using the Cloud, and; Conducting an Information Security Examination.

NASCUS/CUNA Cybersecurity Symposium; information and registration

FFIEC statement on risk and cybersecurity threat management

BRIEFLY: NH commissioner takes office; MBL school a hit; Letter to CUs on deposits

Welcome to Gerald "Jerry" Little, who was officially sworn in as Commissioner of the New Hampshire BankingMBL school Department June 3 and began his role at the Department the same day. A former state senator, he also served as president of the New Hampshire Bankers' Association for 20 years … Our two-day MBL School in New Orleans was a hit; participants focused on the importance under the new NCUA rules of proper commercial lending underwriting (at right, session leader Jim Devine, Hipereon Chairman and CEO, speaks to the group) … Guidance to address discrepancies that may occur with amounts deposited by a member or customer and the dollar amount credited to that account, is addressed in a new Letter to Credit Unions from NCUA, issued May 18. NASCUS has posted a summary of the letter (available to members only).

NASCUS summary, LTCU 16-CU-04

Cybersecurity Symposium, Aug. 1-2

Information Contact:
Patrick Keefe, NASCUS Communications, pkeefe@nascus.org or (703) 528-5974