Comment letter details six key areas
of NCUA Exam Flexibility Initiative

Aug. 3, 2016 -- Commenting on six areas – the exam cycle, extended examination cycle eligibility, the regulatory appeal process, adopting a variable approach to regulation, leveraging technology and call report reform – NASCUS has filed a letter about NCUA’s Exam Flexibility Initiative.

In the letter, NASCUS pointed out that federally insured, state-chartered credit unions face a unique burden of facing both state and federal exams -- but that burden can be mitigated when state and federal regulators improve efficiencies, conserve resources and coordinate and harmonize where possible.

“The configuration of NCUA’s examination program for both federal credit unions (FCUs) and federally insured state chartered credit unions (FISCUs) influences and impacts how state regulators structure their supervision programs and expend their resources,” the NASCUS letter stated. The letter also pointed out that, in addition to affecting state regulators, NCUA’s share insurance related examination program for FISCUs also directly affects state chartered credit unions and the state credit union system.

Specifically, with regard to the six areas, NASCUS wrote:

  • Exam cycle: NASCUS urged the agency to “move expeditiously” to a policy allowing discretionary extended exam cycles for all FISCUs, and – in lieu of NCUA exams -- to adopt a policy of accepting state exams for FISCUs regardless of size. NASCUS wrote that approach would be “consistent with Congress’ statutory mandate to rely on state examinations.” NASCUS added that NCUA could extend the exam cycle for larger FISCUs examination cycle to an 18-month cycle, accepting state exams without any material increase in risk to the NCUSIF. “Setting a more flexible examination cycle would allow states and NCUA to focus resources where most urgently needed,” NASCUS wrote, particularly for state regulators, who not only examine 2,600 state charters, but in some cases CUSOs and other-third-party service providers.
  • Extended exam cycle eligibility: Noting that nearly 5,000 of the 6,051 insured commercial banks are eligible for an extended examination cycle (because of their size – less than $1 billion in assets, and CAMELS composite ratings of 1 or 2), NASCUS recommended NCUA “should adopt the same standard for credit unions.” Additionally, NASCUS recommended the agency’s policy should explicitly provide for consultation with state regulators in establishing individual exam cycles.
  • Appeals process: NASCUS urged the agency to enhance its appeals process, initially by publishing annually aggregate information about the number of appeals filed, the subjects covered, and disposition. “A more robust, effective, and transparent appeal process might also alleviate longstanding tensions between regulators and credit unions regarding the citation of guidance and best practices in the examination process,” NASCUS wrote.
  • Variable approach: NASCUS acknowledged that NCUA and state regulators should develop standardized protocols to govern the national relationship – but should also recognize that specific circumstances might necessitate a “varied approach” among the states not commit to a rigidity of policy that forecloses the ability to acknowledge that specific circumstances might necessitate a varied approach among the states.
  • Technology use: Noting that several states have already done so, NASCUS urged that NCUA create secure portals for transmission of information between credit unions and regulators, which would lead to increased off-site review, reduce on-site disruption to credit unions, and likely improve consistency of analysis. Additionally, NASCUS recommended the agency coordinate with states on the secure portals, “to ensure maximum system compatibility.”
  • Call Report reform: Pointing out that decisions related to the structure and scope of NCUA’s exam presence in FISCUs are linked to off-site monitoring and information gathering, NASCUS stated that efficiencies gained in the Call Report process “create greater flexibility for regulatory allocation of resources and reduce regulatory burden for credit unions.” NASCUS additionally noted that it intends to submit detailed comments in response to NCUA’s review of its 5300 Call Report.


NASCUS comment letter to NCUA on Exam Flexibility Initiative