NCUA's Rejection of Longer Exam Cycles Premature: McWatters

I wish to thank the Credit Union Journal for informing my office that NCUA had shot down Paul Gentile's and NAFCU's proposal to lengthen the examination cycle to 18-months for certain "low-risk" credit unions. ("NCUA Shoots Down NAFCU's Exam Schedule Suggestion, Despite State League Support," CU Journal, Aug. 20)

That NCUA would scuttle this request without debate among the board offices further evidences the lack of transparency and collegiality within the agency. As we all know, more than 70% of NCUA's operating budget consists of examination and travel related costs, and any reasonable suggestion regarding how to better manage the inexorable increase in these costs merits thoughtful reflection. NCUA seems to have forgotten that it's not 2008, but, instead, 2015 and that the credit union community — in NCUA's own assessment — is strong and resilient. That the top-tier of credit unions require full-tilt examination every 12 months is worthy of challenge and rigorous debate.

Mr. Gentile's and NAFCU's proposals were purposely and appropriately vague regarding the precise metrics as to what should constitute a "low-risk" credit union. The proponents of an extended examination cycle no doubt expected give-and-take regarding the development of these metrics with the ultimate goal of reducing NCUA's operating budget, decreasing management distraction from a relentless 12-month examination cycle of the absolutely strongest credit unions, while protecting the safety and soundness of the share insurance fund.

It's regrettable that NCUA does not have the confidence to debate this issue in a transparent manner. Although it's entirely possible that the agency would have elected to continue with a 12-month examination cycle (perhaps, with my support), the failure to engage in a dialogue within the agency and with the credit union community is most unfortunate and offers yet additional evidence of the need for formal budget hearings on the record.

Please do not conclude from my observations that I support Mr. Gentile's and NAFCU's proposed 18-month examination cycle for "low-risk" credit unions. The devil is in the details, and my response to the proposal depends upon how one defines "low risk." There's little doubt that Mr. Gentile and NAFCU may advocate for a more generous definition than I could, in good faith, support as a safety and soundness regulator. That's their job and I have my job, yet as I have stated many times over the past year, reasonable minds may differ. My point, however, is more subtle, the idea that a group of well-managed, fiscally sound credit unions could operate without a safety and soundness risk if examined every 18-months (or 15-months) is not, per se, without merit. The proposal deserves a thoughtful analysis by NCUA.

J. Mark McWatters
Board Member, NCUA
Alexandria, Va.