IT IS TIME TO CONSIDER AN 18-MONTH
BY J. MARK MCWATTERS, NCUA BOARD MEMBER
There are many things today that do not
make sense. Policies from NCUA should
not be on that list.
Yet, while there are others, the agency’s current official policy,
to maintain a 12-month examination cycle even for well-managed federally insured credit unions, does not stand up
in light of recent developments and should be revisited sooner
rather than later.
Following statutory changes, the federal bank regulators
recently issued an interim final rule to revise their approach
to allow more well-managed, well-capitalized community
banks and savings associations, those with less than $1 billion
in assets, to be eligible for an 18-month examination cycle.
Prior to this change, banking institutions could be examined
every 18 months if they did not have more than $500 million
Comptroller of the Currency Thomas Curry, who said he had
supported this idea for community banks for quite some time,
explained that bank regulators had been considering this move:
in the context of the EGRPRA process—the Economic Growth
and Regulatory Paperwork Reduction Act requirement that we
take a periodic look at regulations that are unnecessary and overly
burdensome ... The 18-month examination cycle, which has been
limited to institutions with less than $500 million in assets, struck
me as an area where we could offer meaningful regulatory relief
to a large group of community banks and thrifts with very little
safety and soundness risk.
It took congressional permission, though, for the bank
regulators to act. To achieve this, the regulators supported
efforts, along with community banks, to encourage Congress
to authorize the expanded examination cycle in the Fixing
America’s Surface Transportation Act, which was passed and
signed into law by President Obama in December.
In other words, by supporting common objectives, banks
and bank regulators helped secure passage of the improved
Unlike the bank regulators, NCUA does not need additional
permission to approve a change in the examination cycle.
This fact makes it even more disconcerting that NCUA has
not officially considered this matter, particularly because
NCUA is participating in the EGRPRA review process along
with the bank regulators.
Very small credit unions are subject to more flexible exams,
and state-chartered credit unions with assets up to
$250 million may be subject to a longer examination cycle.
Yet as things stand, there is a clear message being sent that
many well-managed credit unions do not merit a longer
examination cycle because they are riskier than similarly-sized
community banks, and are as risky as the largest banks in the
country. Does that make sense? Our own examination reports
indicate otherwise and clearly support the strength of the
credit union system.
NCUA’s initial response to the Cooperative Credit Union
Association’s Paul Gentile, NAFCU and others was to dismiss
their request outright. Currently the agency’s position is that
NCUA has already provided a number of relief measures and
the agency needs to give them time to work. Credit unions
tell me their burdens still far outweigh any relief.
In a bipartisan effort, Representatives, Frank Guinta (R-NH)
and Ruben Hinojosa (D-TX) have urged NCUA to adopt the
longer examination cycle, and many of their House colleagues
joined their efforts.
This is a positive step, and it brings more attention to this
issue. At the same time, Congress should not have to urge
the agency to work on fundamental issues, such as the
Of course, we should weigh the implications of moving to a
longer examination schedule and have a robust discussion of
what subset of criteria could be used to qualify for an
extended examination cycle. It is time to begin seriously
studying the efficacy of a longer examination cycle to
implement not in future years, but this year. It does not make
sense for NCUA to delay any longer.
“It is time to begin seriously studying the fficacy of a longer examination cycle
to implement not in future years, but this
year. It does not make sense for NCUA
to delay any longer. ”
“Unlike the bank regulators, NCUA does not need additional permission to approve
a change in the examination cycle. ”