As the first significant act by Rick Metsger since taking the reins at the National Credit Union Administration, plans to push the exam cycle from 12 months back to 18 months drew a swift and positive response from the industry.
Metsger, who recently took over as chairman of the agency, announced Thursday that NCUA plans to remove the requirement that every federal credit union, and all federally insured, state-chartered credit unions with more than $250 million in assets, be examined each calendar year, something a number of credit union advocates have been pushing for.
The federal credit union regulator said it will review the entire examination process, and will form a working group to bring all stakeholders into that effort, but it was the change to the frequency of examinations that drew the most attention.
The Cooperative Credit Union Association, which serves CUs in Massachusetts, New Hampshire and Rhode Island, has been advocating strongly for an extended exam cycle over the last two years. Paul Gentile, president and CEO of the CCUA, described Metsger's announcement as, "A very positive development and very necessary."
"The credit union system continues to display tremendous health trends. I applaud the chairman for recognizing the regulatory relief value of extending the exam cycle," Gentile said.
Asked what he thought finally allowed the exam cycle change to happen, Gentile replied, "It just makes sense."
"I think NCUA realizes it cannot ignore the strong health of the system," he told Credit Union Journal. "NCUA had to recognize the model of just coming in every 12 months to every credit union is not the future of effectively regulating credit unions. They have to use data and analysis to identify trends and focus their resources."
Money also was a factor, Gentile continued, stating, "I think they recognize you cannot continue to raise budgets to accommodate more personnel to examine all credit unions. The banking regulator is now doing this for their well-run banks and they are able to put more resources to those banks that need more attention. NCUA certainly has the wherewithal to do that, and the system will actually be safer, not weaker, because they will be able to focus their attention on those credit unions that need it the most."
Lucy Ito, president and CEO of the National Association of State Credit Union Supervisors, said the calendar-year requirement as it currently exists is a "burden on both credit unions and state regulators."
"We welcome Chairman Metsger's plans to review — and, hopefully, make a change within the next two months — to the required frequency of exams by the federal agency," Ito said in a statement. "From state regulators' point of view, the annual exam requirement places the credit union system at a competitive disadvantage relative to the community bank system, for which the threshold is now $1 billion, versus $250 million for credit unions."
NASCUS and Ito also urged Metsger to include state regulators in any working group he appoints, "As state regulators have firsthand insight into the relative risk posed by similarly sized credit unions and community banks. Past inclusion of state regulators on NCUA working groups has resulted in thoughtful, strong regulation for the entire credit union system," she said.
Jim Nussle, president and CEO of Credit Union National Association, said the announcement is "very good news for credit unions."
"Reducing the frequency of examinations for credit unions would remove some unnecessary pressure on credit union resources — resources that can better be used to serve members," said Nussle. "Such an action by the agency would also be both prudent and appropriate as it would refine the cycle to be more consistent with the examination cycle for banks."
Nussle added, "Reducing exam frequency is a top priority for CUNA. We have used our 360-degree advocacy approach, working with NCUA as well as federal lawmakers, to seek relief for credit unions on this issue. We thank Chairman Metsger for acting on this important issue just days after taking the reins of the agency."
Carrie Hunt, executive vice president of government affairs and general counsel for the National Association of Federal Credit Unions, also welcomed the announcement.
"We appreciate Chairman Metsger's response to our concerns about credit unions' exam cycles and continue to urge the agency to implement a longer exam cycle as soon as possible," Hunt said. "Healthy credit unions that have acted responsibly should not have to deal with such frequent exams, which are unnecessary and burdensome for the industry."
