ALEXANDRIA, Va. — That didn't take long.
Less than 48 hours after NAFCU and the Cooperative CU Association each sent NCUA letters urging the regulator to return to an 18-month examination schedule, the agency scuttled the idea.
"The current 12-month exam cycle has proven to be both more appropriate and more effective than an 18-month cycle," NCUA spokesman Ben Hardaway said in an e-mail to Credit Union Journal. He emphasized that "One of the key lessons from the financial crisis was the need to detect and resolve problems earlier," which Hardaway said the GAO and NCUA's own inspector general have stressed in independent reviews.
According to Hardaway, credit union financial stability changes too quickly to allow for the risks that can occur when an institution goes longer than 12 months without an exam.
"For example, the probability of a downgrade in a credit union's CAMEL rating increases," wrote Hardaway. "The sooner examiners are able to detect problems—including instances of fraud—the sooner we can work with the credit union on a corrective action plan or minimize potential losses to the Share Insurance Fund. In addition, more frequent onsite contacts help ensure more accurate and reliable Call Report data, and provide more timely oversight, especially for smaller credit unions with limited internal controls."
However, NAFCU wasn't proposing that all credit unions have their exam schedules reduced—only federally chartered CUs that are specifically determined to be "low risk."
Hardaway reminded that for state charters of $250 million or less in assets, NCUA field staff can forego annual insurance reviews in favor of exams conducted by state regulators. Additionally, he pointed to the Small CU Examination Program, which shortens the exam process for CUs with assets of $30 million or less that are financially and operationally sound. Field staff can also elect to perform similarly streamlined, defined-scope exams for FCUs with assets of $30 million to $40 million with CAMEL ratings of 1, 2 or 3 as of their last exam.
States in Favor
Despite NCUA's response to Credit Union Journal, Hardaway said the agency will formally respond to NAFCU's letter "in the near future." But some state leagues have already weighed in, voicing their support for a move to lengthen the exam schedule, which NAFCU suggested would place examiners inside a credit union no more than twice every three years.
The Cooperative Credit Union Association, which represents CUs in Rhode Island, New Hampshire and Massachusetts, was quick to weigh in to the NCUA board with a letter that also called for reverting to the 18-month exam cycle. Additionally, the League of Southeastern Credit Unions told CU Journal that amending the exam schedule would dovetail well with NCUA Chairman Debbie Matz's goal of making 2015 "the year of regulatory relief."
"By asking the NCUA to consider returning to the 18-month exam cycle for well-run credit unions, it will give credit unions more time to focus on serving their members well, not always preparing for the next exam," said Patrick LaPine, LSCU president and CEO. "Additionally, an 18-month exam cycle will also save the agency money that can be translated into a lower workforce with savings being passed along to regulated entities."