WASHINGTON -- The National Credit Union Administration is considering changing the way it gauges the health of credit unions it regulates.
The agency's top examiner said it wants to move to a more flexible model that takes into consideration alternatives to capital and equity ratios.
"We want to get away from a numerically driven system to one that would say, this credit union's a low risk to the agency, this one's a medium risk, and this one's high risk," said D. Michael Riley, director of examination and insurance.
Capital May Mask Risk
"A credit union with lower capital might be safer than one with higher capital because it might have less potential risk. But our present system can't differentiate between those two."
The agency uses the so-called Camel system, which rates credit unions on capital, assets, management, earnings, and liquidity. Credit unions are ranked on a 1-to-5 scale, with 1 being the best performance.
The system was adopted in 1986, when the industry had problems.
"Most credit unions are a low to medium risk to the agency," said Mr. Riley, who advocates the change.
By working with an evaluation system focusing on a credit union's track record, policies, procedures, and internal controls, examiners could more accurately gauge its degree of risk than they could under the Camel system, Mr. Riley said.
Such a change would help correct the inflexibility of some examiners, which Mr. Riley says is the weak point of his office.
The agency is seeking to regulate in a way that would help credit unions prosper in a marketplace shaped by new financial providers, corporate restructuring, a slow economy, and changing employment patterns.
The agency also wants to sharpen examiners' skills to keep up with developments in the industry, such as shared branching and investments.
Investments are a source of concern as credit union portfolios have expanded in recent years, Mr. Riley said.
In the past six months the agency has hired two examiners with investment experience.
And other changes are afoot. A recent study of the NCUA calls for improving internal and external communications, upgrading technology, and creating a national exam committee.