The Credit Union National Association has some tips for the industry's federal regulator. The National Credit Union Administration asked for the advice in March. The agency has received about 40 letters, and more are trickling in. The suggestions for improvement are being studied by agency staff. CUNA's recommendations come from its Examination and Supervision Task Force, headed by Alabama Credit Union League president Gary B. Wolter. An edited version of the group's eight-page June 28 letter follows:
NCUA deserves credit for providing a supervisory framework that fosters safety and soundness without jeopardizing credit unions' ability to determine and serve the best interests of their members.
It is when NCUA's actions fall short of this standard and tradition that frustrations inevitably arise for credit unions in their dealings with the agency.
CUNA continues to hear from credit unions that some agency policies, as well as some examiners' attitudes, do not seem to reflect the uniqueness of credit unions.
A current example of this concern is that credit unions all over the country are being required to maintain historically high levels of capital and are even being "marked down" by their examiner if their capital level slips from, say, 10% to 9%.
Requiring credit unions to maintain unnecessarily high capital levels impedes their ability to provide loans at reasonable rates and savings at competitive rates.
A closely related concern of credit unions is that rule changes are not always as narrowly crafted as they could be to correct problems in the manner least intrusive to credit union operations.
An example some credit unions cite is the member-business-loan rule.
Concerned about a relatively small number of credit unions involved in financing projects such as the construction of strip malls, NCUA adopted a very broad member-business-loan rule in 1987 that many credit unions felt placed unnecessary restrictions on all business loans of $25,000 and above. In April 1993, the agency adopted some improvements, and we understand it is now reviewing what additional changes could be made in the rule to ease restrictions on member business loans.
CUNA strongly supports revamping the rule to encourage, rather than thwart, credit unions' ability to serve prudently the small business lending needs of their members.
Another important concern for credit unions is that it appears that most agency personnel do not have a good understanding of the total regulatory framework that applies to credit unions.
While NCUA staff, are familiar with the agency's own rules, many examiners and other staff whom credit unions reasonably would expect to be knowledgeable, are unfamiliar with consumer protection rules, Financial Accounting Standards Board rulings, and Internal Revenue Service requirements.
A related concern is that the NCUA rarely attempts to communicate with any other agencies about the effects of another agency's proposals on credit unions.
It would be very helpful to credit unions if each year NCUA were to set general examination priorities and communicate them in a letter to credit unions.
In addition, each examiner should send the credit unions it examines a notice of the upcoming examination and what documents will be needed for the exam.
NCUA is in the process of reviewing its corporate regulation, Part 704, and determining whether changes are necessary in the provisions that govern interlocks between the management of corporates and other organizations. At least one league has reported to CUNA that an NCUA examiner was examining the corporate and raising questions about the management links between the league and the corporate as if Part 704 had already been changed.
Another example is the development of the current allowance-for-loan-losses policy, which some credit unions reported examiners were enforcing months before it actually became the agency's policy.
Many credit unions feel that for years examiners have viewed the 25% mortgage loan guideline as an absolute limit. Recently, the new chairman sent a letter to credit unions reiterating that the 25% figure is a guideline and not a hard-and-fast rule.
NCUA needs to work with its examiners to ensure that they understand the difference between a proposal and a final rule and the difference between a rule and a guideline.
It would be very helpful to credit unions if NCUA had a policy that examiners must give credit unions the opportunity to recommend alternative approaches and that the examination report should include the credit union's recommendations.
