ATLANTA-As reported first by Credit Union Journal, NCUA says it will begin independent insurance reviews for all federally-insured, state-chartered credit unions in North Carolina as the result of the ongoing release of its CAMEL rating by State Employees Credit Union in Raleigh.
Moreover, NCUA said it will no longer be able to work in concert with the North Carolina Credit Union Division and will no longer be conducting joint exams, nor will it be providing or paying for North Carolina examiners' computer equipment, software and training.
The NCCUD authorized the $23-billion State Employees to disclose its CAMEL rating late last year; federal law and NCUA's own rules and regulations prohibit the release of CAMEL codes. On Sept. 26, 2011, Jerrie K. Jay, administrator of the Credit Union Division, agreed that "SECU will be allowed, on a trial basis, to include the composite CAMEL rating assigned by the Credit Union Division for the period ending Sept. 30, 2010.... It is understood that this approval is for one year only for a credit union with assets over $10 billion."
In a letter to North Carolina's state charters, NCUA Regional Director Herb Yolles stressed the decision to conduct the independent insurance reviews "is not driven by anything you did or failed to do, nor any overall concern with the safety and soundness of North Carolina credit unions."
The letter refers only to a "state-chartered credit union" and does not identify SECU by name.
'Unacceptable Release'
State Employees, the second-largest credit union in the world, first disclosed its CAMEL rating to its members and the public in October, 2011, noting that it was rated a 2 on the 1-5 scale. At the time it stated its ROA of 1.2% and net capital of 7.1% made it a "well-capitalized" credit union under NCUA's minimum capital rules, and said its decision to limit its capital in favor of returning more earnings to members was all that kept it from being rated as a 1.
In his letter, Yolles referred to the release of the CAMEL code as an "unacceptable release of exempt records in violation of the NCUA Rules and Regulations, Part 792, and is contrary to the interests of all credit unions and the National Credit Union Share Insurance Fund (NCUSIF)."
"Federal law and NCUA regulations prohibit credit unions from publicly disclosing information contained in, or related to, examination reports, operating reports or condition reports prepared by, on behalf of, or for the use of federal agencies responsible for the regulation or supervision of financial institutions," Yolles said. Yolles told the North Carolina state charters that the practice of keeping exam reports and related documents private is "universally considered a prudent practice" among all financial regulators as agencies seek to ensure "public confidence."
North Carolina's Jay, however, said she is "very surprised" by what she described as NCUA's "over-reaction" to her department's approval of the CAMEL rating disclosure. Jay said the issue reflects a disagreement between NCUA-which believes federal law pre-empts state law in this case-and North Carolina's Attorney General's office, which does not agree with NCUA and OK'd the decision to permit SECU to publish its rating.
"And what does any of that have to do with computers? I do not know," said Jay.
SECU CEO Jim Blaine had requested permission from the regulator to publish its CAMEL rating in September 2011. "It makes sense for SECU to disclose the rating since, as a cooperative, each of our 'customers' is actually a member-owner with an equity interest in SECU," said Blaine in the letter. "This seems to align closely with the various disclosure provisions of Sarbanes-Oxley and Dodd-Frank, which apply to investor-owned financial institutions."
As a financial institution of more than $10-billion in assets, SECU also must comply with rules from the new Consumer Financial Protection Bureau, and Blaine said the disclosure also complies with the CFBP's demands for greater disclosure.
Disclosure Create A Run?
Sources have told Credit Union Journal in the past that NCUA believes there are numerous reasons for not disclosing CAMEL ratings beyond just federal law, including the fact the state regulator and the federal regulator may arrive at a different CAMEL code rating, and that while disclosure may be beneficial to credit unions rated as a 1 or 2, disclosure of credit unions rated 3, 4 or 5 could lead to greater instability at those credit unions and pose threats to the insurance fund.
"Our attempts to resolve this issue have not been successful," Yolles states in the letter. "Unfortunately, the only alternative for NCUA, to protect the confidentiality of examination reports and examination related information, is to completely separate our organization and programs from NCCUD. For NCCUD, that means NCUA will no longer be conducting joint exams, providing or paying for North Carolina examiners' computer equipment, software and training. For you, that means, quite simply, that NCUA will be conducting independent annual insurance reviews and will be reviewing and processing your call reports."
According to a Jan. 10 memo from CU Division Administrator Jay, NCUA plans to conduct its separate insurance reviews during late January and early February.
Jay said her department has already replaced any computers and other equipment NCUA might have previously supplied, and that its examination platform is not compromised in any way.
