NCUA amends appeals process, seeks comment on stress tests, capital plans

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The National Credit Union Administration has approved two rules to ensure federally insured credit unions have a fair shake at appealing supervisory decisions.

One rule makes it possible for credit union executives to make an appeal and plead their case before the NCUA board of directors

The changes also set out uniform guidelines that govern time frames and the process for handling appeals of supervisory decisions, including the ability for credit unions to present their cases directly to the agency’s board.

“We think the final rule represents a commitment by the board to transparency and due process,” according to Ross Kendall, NCUA special counsel, speaking during today’s NCUA board meeting.

NCUA Chairman Mark McWatters stressed that a suitable due process is critical.

“Without that, people can be intimidated and they can have fear of retaliation and the like,” he said, echoing complaints credit unions have quietly harbored about the appeals process for years. “That is something I don’t want to be a party to.”

In terms of other federal banking agencies’ approach, NCUA’s proposed appeals process is as comprehensive or more comprehensive in many instances, according to Ben Litchfield, a NCUA staff attorney. Banks can’t present their complaints directly to the Federal Deposit Insurance Corp. board of directors or the Federal Reserve Board. “NCUA is trailblazing in that regard,” Litchfield said.

NCUA Board Member Rick Metsger noted that appeals of Supervisory Review Committee decisions could involve examinations and other findings, as well as issues involving stress testing and capital plans.

The final rules are also designed to make the SRC process more transparent, more objective and more efficient. “It provides clear guidelines for agency decisions and concrete next steps for credit unions to seek further redress throughout the agency,” Litchfield said.

In addition, NCUA has preserved the optional review by the director of the Office of Examination and Insurance in the final rule to provide credit unions with an intermediate step before heading to the Supervisory Review Committee or a hearing before the board.

Stress testing
Also on the agenda for the board meeting was a request for information on efforts to standardize reporting formats for credit card, real estate and student loans, as well as commercial loans.

“By standardizing and modernizing our data collection of loans, deposits and investments, we believe we can achieve a more consistent examination process,” said Kelly Lay, NCUA director for business innovation.

Currently, examiners frequently request additional reports and data electrically. However data formats often differ from credit union to credit union and vendor to vendor.
Standardization, NCUA said, could help reduce examination time and cut down on examiner requests for more data. “Examiners would spend less time in the credit union disrupting management,” McWatters said. “We need your comment on this.”

Also on the docket: a proposed rule on capital planning and stress testing. As the largest CUs represent the high level of systemic risk to the National Credit Union Share Insurance Fund, it is appropriate to develop higher prudential requirements to ensure these credit unions are safe and sound, according to Scott Hunter, NCUA’s director of examinations and supervision.

NCUA has already conducted stress testing on its largest credit unions for three cycles, which has garnered valuable insight, Hunter reported.

Once a credit union crosses the $10 billion threshold, they would be subject to new prudential supervisory standards, but stress testing will not be required.

However, they must development governance standards and an infrastructure to assess financial risk and capital adequacy. This demands investment in personnel systems and data analytics, the regulator noted.

Once three or more capital planning cycles pass, a CU with less than $20 billion in assets will be required to run stress tests – but won't be subject to a 5 percent minimum stress test ratio.

If the CU continues to grow and reaches $20 billion in assets, the credit union must incorporate NCUA’s stress test scenarios and would be subject to the agency’s 5 percent minimum stress-test ratio.

“NCUA is planning to invest in personnel and analytical systems to challenge the credit union’s results for credibility,” Hunter said.

The proposal is being issued for a 60-day comment.

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Financial regulations Stress tests Mark McWatters J. Mark McWatters Rick Metsger NCUA