Credit Union Exam Solutions Presents With Flying Colors : Recent Episodes
Mark Treichel's Credit Union Exam Solutions
Tips for Credit Unions Success on the NCUA Examination. Brought to you by Mark Treichel's Credit Union Exam Solutions.
Before he retired from NCUA, Steve Farrar wrote the NCUA regulation on capital. It then sat on the shelf for a few years until it was finalized several years later - essentially the same as Steve drafted it. In this episode learn what he thinks is important and how this regulation works - from the eyes of the author.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
I catch up with Commercial Lending Expert Vin Vieten on the FFIEC's Loan Accommodation Guidance issued late last month.
The guidance provides guidance to federal banking regulatory agencies on prudent commercial real estate loan accommodations and workouts. The main points are:
- Regulators will not criticize financial institutions for engaging in prudent loan workout arrangements with creditworthy borrowers, even if the modified loans are adversely classified due to weaknesses.
- Modified loans to borrowers who can repay according to reasonable terms will not be adversely classified solely due to declines in collateral value below the loan balance.
- The guidance covers risk management expectations, loan classification, regulatory reporting, and accounting considerations for commercial real estate loan accommodations and workouts.
- Short-term accommodations are encouraged as a tool to help borrowers, and the guidance provides principles for prudent risk management of these accommodations.
- For loan workouts, regulators will evaluate the effectiveness of a financial institution's practices, including having appropriate policies, documentation standards, risk monitoring, and regulatory reporting processes.
- The guidance provides principles for classification of renewed/restructured loans, problem loans dependent on collateral for repayment, and restructurings with partial charge-offs.
- The statement emphasizes coordination between the loan workout function and accounting/regulatory reporting staff.
- Appendices provide loan workout examples, relevant supervisory guidance and rules, valuation concepts, adverse classification definitions, and a summary of current expected credit loss accounting.
In summary, the guidance aims to promote consistent supervisory approaches and transparency for commercial real estate loan accommodations and workouts. The goal is to avoid impeding credit availability to sound borrowers while maintaining prudent lending practices.
Here Vin's take on why this is A+ guidance.
In the journey towards achieving fair lending in auto loans, we bring together data-driven compliance and a culture of equality. This powerful combination guides the industry towards a future that is brighter and more inclusive for both lenders and borrowers. In this episode, we have Mike Taliefero, Co-Owner of Compliance Tech, to discuss auto lending and fair lending. Mike kicks off by discussing the significance of fair lending analysis in the context of auto loans, especially within the indirect lending market. He sheds light on the key factors that can give rise to potential fair lending issues in auto lending. He also examines how credit unions usually evaluate fair lending compliance during the car loan process and the important roles that data analysis and technology play in this evaluation. Mike shares real-life examples, showcasing the types of data that are analyzed to ensure compliance and foster transparency. Mike shares the best practices for lenders to comply with fair lending regulations while remaining competitive with loan options for consumers. The road to fair lending is not without challenges, but with the right data and strategies, companies have a high chance of thriving. Tune in and learn how to create a future where fairness is a fundamental principle of the lending industry, benefiting both lenders and consumers.
In today's discussion, JT Blau from the Virginia Credit Union League brings attention to the recently enacted NCUA Member Expulsion Rule. He uncovers its implications for credit unions and members alike. JT begins by explaining the different types of member behaviors that could result in expulsion. As the conversation progresses, JT shares expert advice on how credit unions can approach this groundbreaking rule. He discusses the crucial first steps, including updating bylaws and developing comprehensive policies and procedures. JT's expertise shines as he highlights the importance of consistent documentation, fair treatment, and the alignment of existing policies with the new rule. Don't miss out on this eye-opening discussion that may well shape the future of your credit union. Tune in now!
JT answers these questions and more:
● What type of member behavior makes them subject to expulsion in this method?
● What are the required notices that need to be sent out?
● What are the procedures for the hearing, the member vote, and the request for reinstatement if the member makes one?
● If my credit union wants to do this, what do we need to do first (bylaws amendments, policy and procedures)?
The roots of racial discrimination ran deeper into the financial system. Today, unfair lending still exists in banking. It’s time to uproot this evil in the financial system! Today, Tory Haggerty, the Author of Unfair Lending: Why Discrimination In Banking Still Exists And How to Prevent It, reveals the faults in the financial system and provides some tips and strategies to address the problem. Appraisal bias and whitewashing cause a tremendous impact on the value of the home owned by the minority group. Tory also discussed how AI does not help solve this problem, and instead, it replicates it because AI is learning from a discriminatory world. Tune in for more!
Our take on what the merger might mean.
From CUNA's webpage:
CUNA President/CEO Jim Nussle and National Association of Federally-Insured Credit Unions (NAFCU) President/CEO Dan Berger Tuesday notified members of both organizations that the associations have signed a Letter of Intent (LOI) to merge and form into a single, powerful entity to serve credit unions more efficiently and effectively, without redundancies.
Nussle will serve as the president/CEO of the new association – America’s Credit Unions – should the merger take effect.
“By bringing together these two powerful credit union associations we are doubling down on our commitment to ensure the growth and prosperity of all credit unions across the nation and the 137 million Americans they serve,” said Nussle. “We look forward to uniting CUNA and NAFCU in what will be an exciting new chapter ahead, and we’re thrilled about the opportunities this will create for our members, employees, and business partners.”
The Boards of Directors and Executive Committees of both CUNA and NAFCU voted unanimously in May to merge the two organizations. The merger will be subject to approval from the members of CUNA and NAFCU during a 60-day voting period, which is planned to begin later this month. Berger, who made the decision earlier this year to step aside to fulfill family obligations and pursue other opportunities, will remain at the association until year-end, working to bring the two organizations together and to ensure the merger is a success.
“Both CUNA and NAFCU have worked together over the years to achieve victories for the credit union industry, and now the sky is the limit. I believe this is the best path forward for the industry,” said Berger. “A new, singular association under Jim’s fervent leadership will be able to harness the combined talent of both organizations to provide outstanding value to our members and ensure every household in America has the best credit union to serve them.”
Should members approve of the merger, America’s Credit Unions will legally be established no earlier than January 2024, with the intent to be fully operational by early 2025. The new association will initially be governed by a 16-person Board of Directors. This Transition Board will include current board members from both CUNA and NAFCU, including members of each board’s executive committee.
By combining strengths into a single entity, America’s Credit Unions will be a highly influential and effective voice for credit unions in Washington, D.C., and, in partnerships with the Leagues, across all 50 states, Puerto Rico and Guam.
Additional details of the intent to merge, including a video message from Nussle and Berger and FAQs, can be found online. The associations will keep credit unions and other stakeholders informed throughout the process through frequent communications.
Technological evolution will establish the future of finance through utilizing blockchain technology. In this exciting episode, Becky Reed, a renowned FINTECH leader and crypto enthusiast, explores the fascinating world of decentralized networks. She identifies the role of decentralized networks in bridging the crypto world and credit unions. Becky also emphasizes the importance of innovation in navigating through the technological evolution in finance. Mark and Becky discuss many things like decentralized networks, distributed ledgers, cryptocurrencies, small credit unions, and the important role of innovation. Don’t miss this educational opportunity with Beck Reed today!
Join me as I catch up with Kirk Kordeleski of OM Financial. Together, we explore a diverse range of topics, including the power of mentorship, the intricacies of executive benefits, and the secrets to retaining top-notch C-suite staff. We also take a trip down memory lane through significant events like the 2008 Great Recession, the Corporate Credit Union Crisis, and the conservatorship of WesCorp and US Central. Brace yourself for an enriching conversation filled with insights and anecdotes that will leave you craving for more.
NCUA Examiners will review member expulsions during your next exam, according to t to NCUA Chairman Todd Harper.
Hear directly from NCUA Chairman Harper and staff, with examples on what you can and cannot be expelled for.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
NCUA held its mid-year budget on July 20 and approved six new staff positions:
Cybersecurity Support:
An addition of four positions is requested to augment the NCUA’s cybersecurity and is consistent with independent, third-party assessments of the NCUA’s cybersecurity efforts. Two positions would focus on vulnerability analysis. Worldwide cybersecurity vulnerabilities disclosed in 2022 increased by over 25% to 25,227, with 56% of those being exploited within one week after disclosure. To counter this growing risk, OCIO has made significant efforts over the last several years to reduce response times for threat mitigation; however, the continued increase in the number of vulnerabilities and the workload this creates warrant the addition of two positions. The other two positions requested would help with cloud architecture and security, and management of the NCUA’s cloud strategy. Moving information technology services to the cloud changes the cybersecurity responsibility model and requires a strategy for a secure move while capturing the new risk landscape after the move. For this effort OCIO requires two additional positions to manage and secure the NCUA’s enterprise architecture in the cloud while minimizing the impact of cloud migration to on-premises systems.
• Support to Credit Unions:
An addition of two positions is requested to augment CURE’s consumer access efforts. The Consumer Access Division processes field-ofmembership expansions and conversions, bylaw amendments, low-income designation requests, charter conversions, and ad hoc special projects. In the past few years, the division has received an increased number of applications of all types, which have simultaneously become more voluminous and complex. Based on estimated work hours for these transactions, the workload for 2023 is more than double what it was in 2018.
The additional positions will allow CURE to better support the agency’s mission to assist credit unions with providing access to safe, fair, and affordable financial products and services to current and potential members, including those of modest means. CURE is committed to the continuous review of the field-of-membership process and procedures to ensure an efficient and positive customer service experience which include the streamlining of information requirements and improving clarity in application forms. Management will analyze and identify potential adjustments and clarifications that will reduce staff time for processing applications.
This includes field-of-membership expansions and new credit union charters. CURE will support customer service by implementing technical changes that will reduce duplicative or unnecessary administrative requirements, follow the time requirements for certain field-ofmembership transaction codes, and implement enhancements to the CAPRIS system that will allow CURE to process all occupational and associational common bond groups, regardless of potential membership size. Currently, credit unions that request changes to their field-of-membership exceeding 3,000 individuals must use paper-based forms, and NCUA staff reviews and processes these requests manually. The enhancements to CAPRIS are scheduled to begin in August.
Reach out to learn how we assist credit unions with all things NCUA.
In today's episode, I interview Melanie Hall, Commissioner at the Division of Banking and Financial Institutions, State of Montana. Together, we explore the current state of the banking industry, the economy, the ever-evolving landscape of interest rates, and the role of organizations like NASCUS and CSBS. Brace yourself for a discussion that not only enlightens but also brings a touch of humor as we share some amusing anecdotes and indulge in a few bad jokes along the way!
I interview Joe Goldberg, formerly of NCUA, and an expert on ECOA.
ECOA Requires creditors to make decisions related to providing credit and credit terms solely on credit-related factors.
Equal Credit Opportunity Act (1974) –
"The Congress finds that there is a need to insure that the various financial institutions and other firms engaged in the extensions of credit exercise their responsibility to make credit available with fairness, impartiality, and without discrimination on the basis of sex or marital status. Economic stabilization would be enhanced and competition among the various financial institutions and other firms engaged in the extension of credit would be strengthened by an absence of discrimination on the basis of sex or marital status, as well as by the informed use of credit which Congress has heretofore sought to promote. It is the purpose of this Act… to require that financial institutions and other firms engaged in the extension of credit make that credit equally available to all credit-worthy customers without regard to sex or marital status."
How do You Rate Credit Risk on your portfolio? On this summer select rerun - you hear from a 40 year expert Vin Vieten.
Vin Wrote NCUA's commercial loan rule and trained NCUA staff.
Vin is now a member of my team at Credit Union Exam Solutions Inc.
Today, I catch up with John Kolhoff SVP of the National Association of State Credit Union Supervisors (NASCUS). We talk about the dual chartering system and its role in maintaining the strength of both state and federal charters. We also discuss the state of the current economy, as well as the challenges and opportunities for credit unions.
Commercial loans can be a big risk if not done right. In this summer select rerun I talk to Expert Vin Vieten on how to build a commercial loan portfolio AND manage the associate risks.
Vin is a member of my team at Credit Union Exam Solutions Inc.
Josh Herman is a Director on the Digital Assets Advisory Services team at SRM (Strategic Resource Management), an independent firm that helps financial institutions identify cost savings and new revenue potential. In this episode, Josh explains the risks in the financial industry and the role of cannabis banking and digital assets in credit unions. Compliance risk is not the primary challenge credit unions face today but the stigma in the financial industry. Furthermore, he expounds what’s the industry’s biggest concern today. He also identifies some risks in the industry and the efforts credit unions made to mitigate those risks. Delve into this episode to see the value of cannabis banking in the financial industry.
Commercial Loan Delinquency is on the rise. In this weeks summer select rerun we talk to Vin Vieten who spent forty years in commercial lending and wrote NCUA's rules on this topic.
If you have commercial loans you won't want to miss this episode.
Small Business Lending Rule – Sec. 1071 of DFA – ECOA 15 USC 1691c-2 (Small Business Loan Data Collection) – Regulation B
Intro and what Joe Goldberg and I will cover
Background and purpose
Overview of coverage and collection/reporting requirements
Compliance dates
Resources available to your credit union
This is the point where you should know about the resources CFPB has so you can determine if your CU is subject to the rule and, if it is, everything you need to know about how to collect and report the data.
Those resources include the following:
Final Rule
Table of Contents for Final Rule
Small Entity Compliance Guide
Executive Summary
Key Dates
Compliance Dates Information
Data Points Chart
Sample Data Collection Form
Filing Instruction Guide
Page on CFPB website (consumerfinance.gov) under Compliance, then go to Compliance Resources and look for Small business lending collection and reporting requirements – links to all the resources, and more, on one page
Here is the link:
Small business lending collection and reporting requirements | Consumer Financial Protection Bureau (consumerfinance.gov)
Many economists are indicated that commercial loans may get hit hard this year with delinquencies, due to:
work from home driving up vacancies,
layoffs,and
Inflation.
This is a classic episode where I interview Vin Vieten who wrote NCUA's commercial loan/ member business loan rule before retiring and joining my team at Credit Union Exam Solutions.
Vin discusses the importance of building a strong credit culture.
In this episode, Mark Treichel discusses Third Party Due Diligence and Contract Management with Mike Heller.
Mike is an Associate with the law firm Messick Lauer & Smith P.C. His primary focus is providing guidance and expertise on contract terms for vendor contracts and agreements. In this capacity, Mike begins with understanding the client’s business objectives and works with the client to ensure appropriate risk mitigation to accomplish those business goals. Credit unions increasingly outsource functions and programs through collaboration with third parties to expand services and product offerings. Developing sound third-party relationships and alliances can assist credit unions in meeting their strategic objectives.
Properly leveraging the skills and experience of qualified third parties may enable credit unions to:
• Provide access to products and services through expanded delivery channels;
• Offer more cost-effective products and services; and
• Manage programs that would not be feasible without external expertise.
In many cases, third-party relationships are essential in enabling credit unions to become their members’ primary financial institution, while inadequately managed and controlled third-party relationships can result in unanticipated costs, legal disputes, and financial loss, NCUA’s role as a regulator and insurer is not to stifle the innovative use of third-party relationships to meet member needs and strategic objectives. NCUA’s goal is to ensure credit unions clearly understand the risks they are undertaking and balance and control those risks considering the credit union’s safety and members’ best interests.
cusolaw.com
https://ncua.gov/files/letters-credit-unions/LCU2007-13ENC.pdf
marktreichel.com
EPISODE CHAPTERS WITH FULL SUMMARIES ---------
(0:00:01) - Managing Interest and Liquidity Risk (10 Minutes)
We explore the importance of managing interest rate, liquidity, and credit risk together, focusing on cash flows, and understanding early warning indicators of liquidity risk. We also discuss the importance of focusing on future liquidity tracks versus past measurements as well as the risks associated with the failure of Silicon Valley Bank and the need to understand risks that can build up in hours, not days. Finally, we explore the need for credit unions to have a modern system in place that can track these risks in hours.
(0:10:00) - Communication and Blame in Bank Failures (12 Minutes)
The importance of having a clear communication plan in place, the finger-pointing that often occurs when banks fail, and the role that regulators have to play are discussed. Mismanagement is almost always to blame for bank failures, and how regulators may have contributed to the situation is explored. The FDIC and other government agencies used the crisis as an opportunity to call for pay raises and other regulations is considered. Lastly, the role of the CPA firm in the failure of Silicon Valley Bank and Signature Bank is examined.
EPISODE CHAPTERS WITH FULL SUMMARIES ---------
(0:00:00) - Managing Model Risk in Enterprise Management (16 Minutes)
We discuss model risk, interest rate risk and credit risk and the importance of enterprise risk management. Todd shares his insights on how institutions need to inventory and categorize the risk of their models and how they can effectively challenge the results of their models to understand the whole story and identify potential risks. We also emphasize the importance of informed conservatism when making decisions and stress testing multiple variables at the same time.
(0:16:23) - Credit Union Challenges and Risks (13 Minutes)
We examine how government assistance during the pandemic affected credit unions and their loan-to-share ratios. We explore the impacts of inflation on deposit growth and the role it played in the fast growth of loans. We also discuss how the composition of deposits in credit unions is different from banks, with credit unions having only 9% uninsured shares, and the importance of tracking large depositors.
(0:29:06) - Balance Sheet Strategy and Risk Management (2 Minutes)
We explore fund transfer pricing models and the need to understand how and why an institution is making money. We also consider the importance of managing interest rate, liquidity and credit risk together, rather than in silos, in order to keep balance sheet metrics in line with credit risk. Tune in tomorrow to hear more about liquidity risk.
Discover valuable insights on the economy's response to the pandemic and the Federal Reserve's attempts to control inflation in our captivating conversation with Todd Miller. As a former regional capital market specialist and director of special actions at NCUA, Todd offers a unique perspective on the potential implications of the Fed raising rates in historical fashion. Don't miss this opportunity to learn from an expert in the credit union sector.
Together, we tackle the challenges regulators and financial institutions face in navigating rising interest rates, volatile funding growth, and overall market uncertainty. Todd shares his insider's view on how the NCUA is managing the situation, addressing mismatched loan and share growth, extended investment portfolios, and volatile earnings. We also delve into the potential impact of ongoing deficit negotiations between the White House and the Republicans.
Finally, prepare to unravel the complexities of model risk as it relates to credit unions, with guidance from the NCUA and OCC Handbook on model risk. We emphasize the importance of interest rate and liquidity risk in the current market, and Todd examines the limitations and costs of models. Find out the crucial factors for success when using third-party models in decision support systems, and learn how to navigate the risks posed by social media on the balance sheet and depositor behavior. This episode is packed with essential information for credit union professionals and anyone invested in the financial sector.
Pandemic, Federal Reserve, Interest Rates, Credit Union, NCUA, Todd Miller, Inflation, Savers, Investment Portfolios, Deficit Negotiations, Model Risk, Liquidity Risk, Third-Party Models, Social Media, Balance Sheet, Depositor Behavior, Early Warning Indicators, Crisis Management, Decision Support Systems
The NCUA conducts onsite reviews in CUSOs presenting either potential systemic or individual credit union risk. Several factors, including the CUSO’s geographic footprint and types of services offered, are considered when deciding which CUSOs will receive an onsite review. The NSPM provides more specific information about the CUSO review process.
In this episode I discuss the nuances of a CUSO exam, whether it is part of a normal exam or an rare independent review.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
In this episode, Mark Treichel is joined by Government Affairs Practitioner John McKechnie, his colleague back in NCUA. Aside from catching up, they also discuss the latest financial proceedings being discussed by Congress today in regard to NCUA. They delve into the attacks of banks to credit unions, vendor authority, CLF, CFB, and the climate-related financial risk from NCUA. Mark and John also discuss their thoughts on how Capitol Hill might attempt to look for a new financial vehicle, only to tack it onto trade associations in the credit union industry.
Each March, the NCUA releases its Annual Report, summarizing the agency’s performance in meeting its strategic goals and objectives. As usual, this year’s report makes for an interesting read, particularly given the industry’s recent volatility.
At the outset, the NCUA should be commended for putting together such a comprehensive, accessible, and intelligent presentation. Last year’s Annual Report won the prestigious Certificate of Excellence in Accounting Reporting award from the Association of Government Accountants. It would not be a surprise if this year’s presentation is a repeat winner. The document is laid out smartly and packed with information.
Overall, the NCUA’s focus in 2022 concerned five broad categories:
· Responding to evolving economic and financial challenges;
· Strengthening the credit union system’s capital levels;
· Increasing cyber resiliency;
· Supporting small credit unions and minority depository institutions; and
· Fostering greater diversity, equity, inclusion and belonging.
Join this conversation today as Mike Macchiarola of Olden Lane offers his analysis on the key takeaways from the NCUA Annual Report.
I started this podcast 15 months ago not knowing how it would do or how long it would last. Last month we had 2,000 downloads and today we are celebrating our 100th episodes.
THANK YOU LISTENERS!!!
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Review of the Federal Reserve’s Supervision and Regulation of Silicon Valley Bank
Silicon Valley Bank (SVB) failed because of a textbook case of mismanagement by the bank. Its senior leadership failed to manage basic interest rate and liquidity risk. Its board of directors failed to oversee senior leadership and hold them accountable. And Federal Reserve supervisors failed to take forceful enough action, as detailed in the report.
Our banking system is sound and resilient, with strong capital and liquidity. And in some respects, SVB was an outlier because of the extent of its highly concentrated business model, interest rate risk, and high level of reliance on uninsured deposits; however, SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed. Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework.
Following SVB’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned. This report represents the first step in that process—a self-assessment that takes an unflinching look at the conditions that led to the bank’s failure, including the role of Federal Reserve supervision and regulation.
Individuals who were not involved in the supervision of SVB conducted the review, and I oversaw it.
The four key takeaways of the report are:
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Silicon Valley Bank’s board of directors and management failed to manage their risks.
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Supervisors did not fully appreciate the extent of the vulnerabilities as Silicon Valley Bank grew in size and complexity.
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When supervisors did identify vulnerabilities, they did not take sufficient steps to ensure that Silicon Valley Bank fixed those problems quickly enough.
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The Board’s tailoring approach in response to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and a shift in the stance of supervisory policy impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
Ryan Donovan is the President of the Council of Federal Home Loan Banks.
The Council is dedicated to enhancing public awareness and understanding of the Federal Home Loan Bank System.
It is the primary public voice of the FHLBank System and its function is to represent the positions and views of its members to Washington, DC policymakers.
The FHLBank System was created by the Federal Home Loan Bank Act of 1932 as a government sponsored enterprise to support mortgage lending and community investment. The System is composed of 11 regional banks which are privately capitalized and owned as cooperatives by their members. Their regional distribution enables each bank to focus on the distinct needs of their individual communities.
While only financial institutions may belong to a FHLBank, people everywhere benefit from them. Each year, the FHLBanks provide access to billions of dollars in low-cost funding to approximately 6,600 of America’s banks, credit unions, insurance companies and community development financial institutions. Without access to FHLBank advances, most members would find it difficult to support lending within their community.
FHLBanks carry out their core mission of providing liquidity by raising funds in the global financial markets, then lending that money in the form of “advances” (loans) to members and local communities.
Each FHLBank is operated independently and receives no taxpayer assistance. Each bank is registered with the SEC and is supervised and regulated by the Federal Housing Finance Agency (FHFA). The Office of Finance serves as the fiscal agent for the FHLBanks.
The new paper from Jim Parrott and Mark Zandi is an opening salvo in what will likely be a high-stakes battle over the future of the lenders. The FHLB system has come under fire in recent weeks for loans made to now-collapsed financial institutions Silicon Valley Bank, Signature Bank and Silvergate Capital Corp.
FHLB loans come with favorable interest rates due to implied US government backing, despite the banks being cooperatives owned by financial institutions. Critics say they can encourage risky behavior by financial firms.
However, Parrott, a former Obama administration housing adviser, and Zandi, chief economist at Moody’s Analytics, said on Tuesday that the FHLBs are vital sources of liquidity for financial institutions and act as a “first responder” in crises. If anything, the system should be expanded, they said in an Urban Institute paper.
“Without the FHLBs, these downturns in the economic cycle would have been significantly more painful, with greater swings in the cost and availability of credit, exacting greater damage on the economy,” they wrote.
Week of SVB:
The Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data.
That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve.
The Next to Last Resort
The first half of 2022 experienced the sharpest increase in interest rates in decades.1 A sharp rise in interest rates may amplify market risk exposure to earnings and capital. This occurs because a credit union’s assets and liabilities do not reprice equally or concurrently. This timing (or duration) mismatch, combined with a sharp rise in interest rates, may result in sharply lower net economic values (NEV) as measured using the NCUA’s NEV Supervisory Test (NEV Test) or the Estimated NEV Tool (ENT).
This letter revises the risk management expectations for credit unions over $50 million in assets described in Letter to Federally Insured Credit Unions 16-CU-08, Revised Interest Rate Risk (IRR) Supervision, effective January 1, 2017. This letter provides additional information and updates to the NCUA’s supervisory framework of interest rate risk (IRR).2
Due to the changing economic and interest rate environments during 2022, the NCUA reviewed the parameters and risk classifications of the NEV Test and overall IRR supervisory framework. As a result of this review, several updates are being made with the issuance of this letter. Part II of this letter describes these changes in more detail.
In summary, these changes include:
- Revising the risk classifications by eliminating the extreme risk classification and modifying the high risk classification;
- Clarifying when a Document of Resolution (DOR) to address IRR is warranted, including removing any presumed need for a DOR based on an IRR supervisory risk classification and related need for a credit union to develop a de-risking plan;
- Providing examiners more flexibility in assigning IRR supervisory risk ratings; and
- Revising examination procedures to incorporate updated review steps when assessing how a credit union’s management of IRR is adapting to changes in the economic and interest rate environment.
Exam staff should refer to the Examiner’s Guide for more information on examining and supervising IRR. If there is a conflict between the National Supervision Policy Manual (NSPM), the Examiner’s Guide, and this letter, exam staff must rely on this letter until the NSPM, and Examiner’s Guide are updated.3 This letter is intended to supplement existing resources on the supervision of IRR; it does not replace or supersede applicable laws and regulation.
Exam staff must remember that IRR is a major area of risk and, under certain market conditions, may expose credit unions to other related issues, such as liquidity risk, asset quality deterioration, unexpected losses to earnings, capital erosion, and strategic risk. The credit union system has experienced significant growth in complexity over the past two years with total assets growing by approximately 25 percent. As the system has grown, concentrations in longer maturity assets have significantly increased sensitivity to changes in interest rates.4
If you have any questions regarding the changes detailed in this letter, please direct them to your immediate supervisor.
I. BackgroundReview of a credit union’s IRR exposure has been a long-standing supervisory priority and part of the NCUA’s supervision program. Over the past decade, the NCUA has enhanced examination tools and issued periodic updates related to IRR for both staff and credit unions.
In 2012, the NCUA updated section 741.3(b) of the NCUA regulations to require credit unions with assets greater than $50 million to maintain a written policy and an effective IRR management program as part of asset liability management.5 The regulation includes Appendix A, which provides guidance for an IRR policy and an effective program.
The NCUA finalized derivatives rules providing more flexibility for federal credit unions to manage IRR in 2014 and revised the rules in 2021.6 The 2021 rule modernized the use of derivatives with a principles-based approach while retaining key safety and soundness components.
Mike Bell of Honigman LLC was recently interviewed by Ken McCarthy of American Banker: The Polarizing Question of Credit Unions Buying Banks.
Bell is the GURU of bank acquisitions. We discuss current trends on this topic and more.
With Liquidity becoming a bigger priority every day we are today's episode is a from the recent archive and discusses how to deal with NCUA on liquidity issues, practical advice, and the FHLB.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Link to Whitehouse "fact" sheet:
https://www.whitehouse.gov/briefing-room/statements-releases/2023/03/30/fact-sheet-president-biden-urges-regulators-to-reverse-trump-administration-weakening-of-common-sense-safeguards-and-supervision-for-large-regional-banks/
President Biden believes that resilient community and regional banks provide vital services to small businesses, workers, and families around the country. The Biden-Harris Administration has taken decisive action to ensure the stability of the banking system without putting taxpayer dollars at risk. As we have demonstrated, the administration has the tools to act quickly to prevent contagion and is committed to taking strong action if needed. Americans should have confidence that their deposits will be there when they need them.
As the President said when his administration announced actions to stabilize the banking system, he is committed to “continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.” The Obama-Biden Administration put in place strong requirements – primarily through the Dodd-Frank Act and subsequent regulations and supervision – to reduce the risk of future banking crises. Unfortunately, Trump Administration regulators weakened many important common-sense requirements and supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to contagion.
The President believes that the weakening of common-sense bank safeguards and supervision during the Trump Administration for large regional banks should be reversed in order to strengthen the banking system and protect American jobs and small businesses.
Specifically, the President urges the federal banking agencies, in consultation with the Treasury Department, to consider a set of reforms that will reduce the risk of future banking crises, including:
- Reinstating rules that were rolled back in the previous Administration for banks with assets between $100 and $250 billion, including:
- Liquidity requirements and enhanced liquidity stress testing. Liquidity rules originally created under the Dodd-Frank Act required banks with between $100 and $250 billion in assets to hold sufficient high-quality liquid assets to cover expected net outflows during a stress period. The Trump Administration eliminated these rules for banks below $250 billion in assets. A recent analysis found that, as of the end of 2022, Silicon Valley Bank was well below the liquidity threshold that would have applied had the Trump Administration not exempted the bank from those rules. As we just saw, Silicon Valley Bank’s liquidity stress contributed to its failure and quickly transmitted to other banks. Bank regulators are encouraged to consider reinstating these requirements and using rigorous liquidity stress tests that factor in the risks of faster withdrawals in an always-on online environment.
- Annual supervisory capital stress tests. Federal banking authorities have undertaken comprehensive capital stress tests to evaluate a range of risks that could face banks and to require that banks clearly have enough capital to withstand the potential losses associated with those risks. Under the Trump Administration, regulators reduced the obligation for banks like Silicon Valley Bank to undergo these stress tests from once a year to once every two years. As a result, when Silicon Valley Bank failed, it had never undergone a comprehensive capital stress test even though it had more than $200 billion in assets. Concerns about the bank’s capital levels contributed to a loss of confidence and withdrawal of deposits.
Banking Committee Hearings reveal many things about the ramifications of the failure of SVB Bank.
New regulations, new guidance, new costs and much more. All that being said there was one sentence of testimony that is the five hundred-pound gorilla:
Marty Gruenberg said "the ten largest deposit accounts at SVB held $13.3 billion" So this was a bailout.
The NCUA Board recently approved a proposal to update their Field of Membership Rule. Its nine potential changes aim to enhance consumer access to safe, fair, and affordable financial services, especially in underserved communities. I dissect these proposed amendments with Rick Mumm, Former NCUA employee and FOM GURU. We explore the positive impact of eliminating census blocks, simplifying business and marketing plan, standardizing fillable applications, aligning with share insurance regulations, and many more. Rick also discusses the problems that could arise with the proposal’s failure to clearly determine a legal entity headquarters, especially with remote work setups being adopted by many entities.
50 years ago the Major Baseball began the Designated Hitter. What does this have to do with Credit Unions?
Check it out as I discuss my quotes in Foxbusiness news article:
https://www.foxbusiness.com/markets/how-safe-credit-unions-bank-turmoil
Another exciting news day:
Yellin Implies a deposit guarantee
FHLB Record Borrowing
ALLL Increasing
and much more on today's news summary.
Could the failure of SVB and Signature Result in an NCUSIF Insurance Premium? Maybe.
In this episode we mostly hear word for word from Secretary Janet Yellin and Senator Rick Langford on why banks and credit unions are getting treated worse than Big Banks.
More information is trickling out about how and why Signature Bank failed.
Also Barney Frank is again touting the need for insuring business accounts. I provide my take on this and more.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
THis episode discusses the statements made by NCUA about the safety and soundness of credit unions, board actions, and Silicon Valley Bank new. NCUA issues this Board Action Bulletin on the Subordinated Debt Rule:
ALEXANDRIA, Va. (March 16, 2023) – The National Credit Union Administration Board held its third open meeting of 2023 and approved a final rule on subordinated debt.
In a prepared statement, Chairman Todd M. Harper said, “I support this rule because it facilitates the access of eligible credit unions to the U.S. Department of the Treasury’s Emergency Capital Investment Program. Congress created ECIP to support the communities of color and low-income households hit hardest by the COVID-19 pandemic’s financial and economic disruptions. With rising interest rates, lingering inflation, and continuing economic uncertainty, under-resourced families and communities face many challenges. ECIP funding is a much-needed boost to these communities, allowing them to address short-term needs and achieve long-term financial stability.”
The final rule makes two changes to the current subordinated debt rule that was finalized in 2020. Specifically, this final rule replaces the maximum permissible maturity of subordinated debt notes with a requirement that any credit union seeking to issue subordinated debt notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.”
The rule also extends the regulatory capital treatment of grandfathered secondary capital to the later of 30 years from the date of issuance or January 1, 2052. This extension will align the treatment of grandfathered secondary capital with the maximum permissible maturity for any secondary capital issued by low-income credit unions under the U.S. Department of the Treasury’s Emergency Capital Investment Program or other programs administered by the U.S. government.
In addition, the NCUA Board approved four minor modifications to other sections of the current subordinated debt rule to make it more user-friendly and flexible.
“This final rule ensures eligible credit unions participating in the ECIP or other government-sponsored initiatives providing needed capital can fully benefit from those initiatives,” Chairman Harper said in his prepared statement. “The 30-year, low-cost, patient capital provided through ECIP will be a game changer in under-resourced communities nationwide. And, with this rule change, credit unions that are either MDIs or CDFIs will be well-positioned to advance economic equity and fulfill their statutory mission of meeting the credit and savings needs of their members, especially those of modest means.”
The final rule is effective 30 days after publication in the Federal Register.
Is It Time to Insure all Bank Deposits. As Wharton Business School Professor stated, It is time to reckon with that.
I discuss this and more in today's episode of With Flying Colors.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
The SVB Blame Game is on - but their is enough blame to go around.
Link to Feds loan program:
https://www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm
marktreichel.com
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
How Will NCUA Respond to Silicon Valley Bank Closure?
Hey everyone. This is Mark Treichel with another episode of With Flying Colors. I am recording this on March 12th. Going to publish this Monday morning, and this is again about the ramification of Silicon Valley Banker sb. B being shut down. , I'm going to talk about how that might impact N C U A, what N C A might do and how that might impact you as a credit union.
So N C U A, what now? Because of. S v b Bank, but first, a lot has hit the news since I recorded, , the podcast that published on Sunday. And, , there was, there's some tweets out there that, , president Biden is saying there will be no bailout. There's some tweets out there that say Janet Yellen is, , saying there will be no bailout.
Janet Yellen, , was on the news shows this mor morning to help. , efforts to ensure that contagion doesn't happen. And I'll go into that a little bit. And these are all precursors of just the news that's hit in the last couple hours. And then I'll jump into, , the main topic, which is N C U A, what Now, I've also heard and seen some tweets that, , as I mentioned in my previously recorded podcast, there's no doubt F D I C and the Fed is trying to sell some assets, , this weekend.
And if they do, They turn it into cash, that cash quickly can be paid out or more quickly can be paid out to the uninsured depositors. All of that is good. , there's also a new article on the Wall Street Journal, , that says, regulators face urgent task to stem spread from Silicon Valley Bank. And, , Janet Yellen.
, , there's a quote from Janet Yellen, , treasury Secretary Janet Yellen. It says, I've been working all weekend with our banking regulators to design appropriate policies to address this situation. Treasury Secretary, , Janet Yellen said in an interview on Face the Nation on c b s, she didn't provide.
Specifics to those plans. We wanna make sure that the troubles that exist at one bank don't create contagion to others that are sound. We are concerned about depositors and are focused on trying to meet their needs. House speaker Kevin McCarthy said that he had discussed the issue with Ms. Yellen and Federal Reserve Chair Drew Powell, and that he was hopeful that the officials would be able to announce their next steps later on Sunday.
They do have tools to handle the current situ. Mr. McCarthy said, , on Fox News's Sunday Morning Futures. , they do know the seriousness of this, and they're working to try to come forward with some announcement before the market opens. I'm hopeful something can be announced today. So again, I've also heard that some bank sale information may happen before the Asian markets open up.
, and all right, so, , there. A lot of work going on at federal agencies, , over the weekend. I'm anticipating that some folks at N C A may be, , doing some number crunching as well. So that gets me to, okay, what happens now at N C U A? So, the N C A has a board meeting on Thursday. It's a light. , light agenda.
, there's only one item and it's the subordinated debt Final rule. I think they're tweaking it, , as it relates potentially to EIP and some other things that they've proposed, , relative to that. So that's a good rule. But that's all that's on the agenda. I'm expecting that, , ensu, a board chairman Todd Harper, will open up and discuss.
, what happened at, , S V B Bank and what that means for credit unions. I think he, when he does that, he will take it as another opportunity to say that Congress needs to provide more flexibility and make changes to the rule around the C L F, also known as the central liquidity facility because there were some laws that were in place under the pandemic.
For more listen to the full podcast
Joint Statement by the Department of the Treasury, Federal Reserve, and FDICThe following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:
Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.
FDIC Closed Silicon Valley Bank on Friday. How will the play out? Will there be contagion? Should this be Caveat Emptor or should there be a bailout? Who are what caused the run?
We discuss this and more.
For Immediate ReleaseWASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
Customers with accounts in excess of $250,000 should contact the FDIC toll–free at 1-866-799-0959.
The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.
Silicon Valley Bank is the first FDIC–insured institution to fail this year. The last FDIC–insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
Today's guest will paint us a picture of great value with flying colors!
In this episode, Mark Treichel speaks with Geoff Bacino, a former NCUA Board Member, about the NCUA Board. Geoff also shares the work he does managing three associations, and one of the associations he runs is the National Association of State Chartered Credit Unions. There is much more to unpack in this episode, so what are you waiting for? Tune in to this episode now!
During his GAC Speech, NCUA Chairman Todd Harper said:
"... It doesn't seem fair that credit union members have less protection than bank customers...and it's why we are now creating consumer compliance specialist positions in the field and starting the process to build out an enhanced consumer compliance exam program..."
more text from his speech follows:
State of the Credit Union SystemIn terms of overall performance, federally insured credit unions remained on a solid footing last year. Total loans, assets, and insured shares all increased. Capital levels also remained strong. Economic activity — however — has begun to cool. Insured share growth has slowed, as some consumers have drawn down their built-up savings. Households are also taking on more debt. And, in the event of an economic slowdown, these factors could hinder borrowers’ ability to repay outstanding debt, exposing your credit union to greater levels of credit risk. That’s why we must all take actions to prepare for a downturn.
Interest Rate RiskIn fact, your ability to manage interest rate risk will be a crucial factor in your performance in 2023. Interest rates rose across the yield curve last year. As rates increase in the current economic environment, so does the associated risk that makes short-term liquidity events possible. The potential for sudden changes in either inflation, the rate environment, or the economy mean that you must remain nimble.
Consumer Financial ProtectionNow, I know that many of you have heard me say this before, but I’m going to keep saying it because it is part of my core beliefs: All consumers — regardless of their financial services provider of choice — should receive the same level of consumer financial protection. Yet, unlike the federal banking agencies, the NCUA does not conduct separate consumer compliance exams nor does the agency assign a separate consumer financial protection rating. It doesn’t seem fair that credit union members have less protection than bank customers.
During my four years on the NCUA Board, the agency has made some strides like increasing its fair lending exams and reviews. And, it’s why we are now creating consumer compliance specialist positions in the field, and starting the process to build out an enhanced consumer compliance exam program. And, as part of its supervisory priorities this year, the NCUA continues to focus on overdraft programs and will dive more deeply into certain features.
To that end, NCUA examiners will review website advertising related to overdraft programs, balance calculation methods, and settlement processes. And, examiners at federal credit unions with more than $500 million in assets will dig into authorize positive, settle negative transactions, as well as some other problematic fees. Our supervisory efforts here are aimed at creating a more equitable financial system that enables financial security for credit union members, especially those of modest means.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Reach out to learn how I can assist
Liquidity RiskHigher interest rates have caused a slowdown in prepayments for some loans and investment holdings, which has resulted in reduced cashflows. Large increases in share balances from 20202022 may result in an increased level of share sensitivity and share roll off as market rates continue to rise.
In evaluating the “L” component of the CAMELS rating to determine the adequacy of your credit union’s liquidity risk management framework, examiners will consider the current and prospective sources of liquidity compared to funding needs. Examiners will review your credit union’s liquidity policies, procedures, and risk limits. Examiners will also evaluate the adequacy of your credit union’s liquidity risk management framework relative to the size, complexity, and risk profile of your credit union.
Examiners will assess liquidity management by evaluating:
- The potential effects of changing interest rates on the market value of assets and borrowing capacity.
- Scenario analysis for liquidity risk modeling, including possible member share migrations (for example, shifts from core deposits into more rate-sensitive accounts).
- Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds).
- The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls.
Resources and guidance on liquidity risk can be found in the NCUA’s Examiner’s Guide.
https://www.linkedin.com/in/mark-treichel/
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Interest Rate RiskInterest rates rose significantly across the yield curve during 2022, elevating interest rate risk (IRR) and the related exposure to earnings and capital. This sharp rise in rates has amplified market risk because a credit union’s assets and liabilities do not reprice equally, potentially impacting net economic values and credit unions’ projected earnings.
In September 2022, the NCUA issued Letter to Credit Unions 22-CU-09, Updates to Interest Rate Risk Supervisory Framework, and Supervisory Letter 22-01, Updates to Interest Rate Risk Supervisory Framework, updating the NCUA supervisory framework for IRR.
With the April 2022 addition of the Sensitivity to Market Risk, or “S,” component to the CAMELS rating system, the agency has formalized the focus on IRR as a specific rating category separate from liquidity risk.
High levels of IRR can increase your credit union’s liquidity risks, contribute to asset quality deterioration and capital erosion, and put pressure on earnings.
Well-managed credit unions are prudent and proactive in managing IRR and the related risks to capital, asset quality, earnings, and liquidity. As such, examiners will review your credit union’s IRR program for the following key risk management and control activities:
- Key assumptions and related data sets are reasonable and well documented.
- The credit union’s overall level of IRR exposure is properly measured and controlled.
- Results are communicated to decision-makers and the board of directors.
- Proactive action is taken to remain within safe and sound policy limits.
Additional references for IRR are in the Examiner’s Guide under Workpapers and Resources In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Fraud Prevention, Cyber-Security and Consumer Protection - are covered today relative to NCUA's Supervisory Priority Letter. We also discuss succession planning, transparency, and more!
Per the letter:
NCUA's 2023 Priority Letter was recently released. In this episode I discuss the top 3: Interest Rate Risk, Liquidity Risk, and Credit Risk with two members of my team: Todd Miller and Steve Farrar.
Per NCUA:
Supervisory Priorities for 2023Interest Rate RiskInterest rates rose significantly across the yield curve during 2022, elevating interest rate risk (IRR) and the related exposure to earnings and capital. This sharp rise in rates has amplified market risk because a credit union’s assets and liabilities do not reprice equally, potentially impacting net economic values and credit unions’ projected earnings.
In September 2022, the NCUA issued Letter to Credit Unions 22-CU-09, Updates to Interest Rate Risk Supervisory Framework, and Supervisory Letter 22-01, Updates to Interest Rate Risk Supervisory Framework, updating the NCUA supervisory framework for IRR.
With the April 2022 addition of the Sensitivity to Market Risk, or “S,” component to the CAMELS rating system, the agency has formalized the focus on IRR as a specific rating category separate from liquidity risk.
High levels of IRR can increase your credit union’s liquidity risks, contribute to asset quality deterioration and capital erosion, and put pressure on earnings.
Well-managed credit unions are prudent and proactive in managing IRR and the related risks to capital, asset quality, earnings, and liquidity. As such, examiners will review your credit union’s IRR program for the following key risk management and control activities:
- Key assumptions and related data sets are reasonable and well documented.
- The credit union’s overall level of IRR exposure is properly measured and controlled.
- Results are communicated to decision-makers and the board of directors.
- Proactive action is taken to remain within safe and sound policy limits.
Additional references for IRR are in the Examiner’s Guide under Workpapers and Resources(opens new window).
Liquidity RiskHigher interest rates have caused a slowdown in prepayments for some loans and investment holdings, which has resulted in reduced cashflows. Large increases in share balances from 20202022 may result in an increased level of share sensitivity and share roll off as market rates continue to rise.
In evaluating the “L” component of the CAMELS rating to determine the adequacy of your credit union’s liquidity risk management framework, examiners will consider the current and prospective sources of liquidity compared to funding needs. Examiners will review your credit union’s liquidity policies, procedures, and risk limits. Examiners will also evaluate the adequacy of your credit union’s liquidity risk management framework relative to the size, complexity, and risk profile of your credit union.
Examiners will assess liquidity management by evaluating:
- The potential effects of changing interest rates on the market value of assets and borrowing capacity.
- Scenario analysis for liquidity risk modeling, including possible member share migrations (for example, shifts from core deposits into more rate-sensitive accounts).
- Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds).
- The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls.
Resources and guidance on liquidity risk can be found in the NCUA’s Examiner’s Guide.
Credit RiskCredit risk is a supervisory priority for 2023 as high inflation and rising interest rates are putting financial pressure on credit union members. High inflation and the increasing likelihood of an increase in unemployment rates could negatively impact borrowers’ ability to repay outstanding debt. Rising interest rates could also result in higher loan payments for borrowers.
NCUA just approved its Annual Performance Plan. It included a goal of achieving CAMELS code 4s and 5s of less than 2 percent of assets. This would allow an a ten fold increase of current numbers!
Per NCUA
The National Credit Union Administration’s Annual Performance Plan, in concert with the agency’s budget, outlines the resources and strategies the NCUA will use to set priorities and improve performance. This plan is guided by the NCUA’s 2018–2022 Strategic Plan, which includes the following strategic goals: 1. Ensure a safe and sound credit union system; 2. Provide a regulatory framework that is transparent, efficient and improves consumer access; and 3. Maximize organizational performance to enable mission success. The Annual Performance Plan sets out performance measures and targets in support of the goals in the Strategic Plan. The NCUA’s Annual Performance Plan has five components: (1) strategic goals; (2) strategic objectives (3) performance goals; (4) performance measures and associated targets; and (5) means and strategies to accomplish the strategic objectives.
About Credit Union Exam Solutions:
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Winston Churchill said never let a good crisis go to waste. This is why NCUA should have approved a rule allowing Federal Credit Unions to grant loans up to 21%.
Per NCUA:
Board approval to maintain the current temporary 18 percent interest rate ceiling, for loans made by federal credit unions (FCUs), for a new eighteen-month period from March 11, 2023, through September 10, 2024. 12 USC §1757(5)(A)(vi)(I). Notwithstanding this action, nothing in the Federal Credit Union Act precludes the NCUA Board from acting on the 18 percent interest rate ceiling earlier than 18 months.
The Federal Credit Union Act, 12 USC §1757(5)(A)(vi)(I), requires the NCUA to consult with the following external parties before establishing an interest rate ceiling above 15 percent: the appropriate committees of Congress, the Department of the Treasury, and the Federal financial institution regulatory agencies. The agency has received letters from the Senate Committee on Banking, Housing and Urban Affairs and the Department of Treasury in support of maintaining the loan rate ceiling at 18 percent.
If the Board does not take action before March 11, 2023, to renew a maximum loan interest rate ceiling of greater than 15 percent, the maximum FCU loan interest rate ceiling will revert to the statutory level of 15 percent, including rates on Payday Alternative Loans. 1 In accordance with the requirements set forth in 12 U.S.C. §1757(5)(A)(vi)(I), staff analyzed recent market and financial conditions to advise the Board whether it should continue to establish a maximum interest rate ceiling for loans made by FCUs that exceeds the 15 percent limit established in the Federal Credit Union Act. Specifically, §1757(5)(A)(vi)(I) provides that: [T]he rate of interest may not exceed 15 per centum per annum on the unpaid balance inclusive of all finance charges, except that the Board may establish, after consultation with the appropriate committees of the Congress, the Department of Treasury, and the Federal financial institution regulatory agencies, an interest rate ceiling exceeding such 15 per centum per annum rate, for periods not to exceed 18 months, if it determines that money market interest rates have risen over the preceding six-month period and that prevailing interest rate levels threaten the safety and soundness of individual credit unions as evidenced by adverse trends in liquidity, capital, earnings, and growth. Staff concludes that the two statutory conditions have been met. Money market rates have risen over the preceding six-month period and lowering the interest rate ceiling below the current temporary 18 percent maximum would threaten the safety and soundness of individual credit unions due to the anticipated adverse effects upon liquidity, capital, earnings, and growth. Staff has determined that a significant number of FCUs would be adversely affected absent a Board action to sustain a maximum FCU loan interest rate ceiling at 18 percent. There are 2,177 FCUs that hold over $24 billion in loan balances with rates above 15 percent. Of those 2,177 FCUs, 877 FCUs have loan balances of $21.0 billion with average rates greater than 17 percent. Staff recommends the loan interest rate ceiling be maintained at the current level of 18 percent per annum. More detailed information regarding the results of the analysis is included in the attachment entitled “Supplemental Information and Interest Rate Statistics.”
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
𝙒𝙝𝙖𝙩 𝙞𝙨 𝙉𝙊𝙏 𝙤𝙣 𝙉𝘾𝙐𝘼'𝙨 𝙎𝙪𝙥𝙚𝙧𝙫𝙞𝙨𝙤𝙧𝙮 𝙋𝙧𝙞𝙤𝙧𝙞𝙩𝙞𝙚𝙨 𝙛𝙤𝙧 𝟮𝟬𝟮𝟯?
I write and speak often about NCUA's Supervisory Priorities which come out at this time every year.
Last year NCUA showed a HUGE increase in Priorities (up from 7 and 8 the previous years - to 11 topics).
Yet they didn't increase staff to handle these priorities which reminded me of the old saying - 𝗪𝗵𝗲𝗻 𝗘𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴 𝗜𝘀 𝗔 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝘆... 𝗡𝗼𝘁𝗵𝗶𝗻𝗴 𝗜𝘀 𝗔 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝘆...
So I am pleased to see that NCUA has reduced the number of Priorities from 11 to 6!
I will have much content coming here and on my podcast on these 6 priorities soon...
but today I want to mention what "𝗳𝗲𝗹𝗹 𝗼𝗳𝗳" the priority list:
𝗘𝗹𝗲𝗰𝘁𝗿𝗼𝗻𝗶𝗰 𝗣𝗮𝘆𝗺𝗲𝗻𝘁 𝗦𝘆𝘀𝘁𝗲𝗺𝘀: (Odd that it fell off since they only recently hired the new specialists).
𝗕𝗮𝗻𝗸 𝗦𝗲𝗰𝗿𝗲𝗰𝘆 𝗔𝗰𝘁: Ironic that it falls off when they just added BSA Specialists to the Budget - thus making me believe these specialists are being added more to create a career path for staff than expand exams in this area - so that is good for credit unions.
𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗔𝗱𝗲𝗾𝘂𝗮𝗰𝘆: This was new to the list last year due to the new rule. Credit union capital is strong and IRR and Liquidity are job 1 and 2 so I get the rationale here also.
𝗖𝗘𝗖𝗟: Implementation is now required and with all the coverage on this topic I am surprised to say it is a non-event for my clients - another good move to take this off the priority list - but not so fast! They just moved it to Other Updates!
𝗟𝗜𝗕𝗢𝗥: goodbye and good riddance!
𝗟𝗼𝗮𝗻 𝗣𝗮𝗿𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗶𝗼𝗻𝘀: They must have concluded this was more of a good growth trend than a bad growth trend - which also led them to propose changes to the rule to allow more of this down the road (December board proposal).
They also snuck 𝗦𝘂𝗰𝗰𝗲𝘀𝘀𝗶𝗼𝗻 𝗣𝗹𝗮𝗻𝗻𝗶𝗻𝗴 into the "𝗢𝘁𝗵𝗲𝗿 𝗨𝗽𝗱𝗮𝘁𝗲" Category...so the decrease in priorities is actually smaller than it looks on the surface. More to follow from me on this topic soon.
I can't end this post without listing the actual 2023 Priorities - which I will discuss in detail here and elsewhere soon:
𝟭 𝗜𝗥𝗥
𝟮 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗥𝗶𝘀𝗸
𝟯 𝗖𝗿𝗲𝗱𝗶𝘁 𝗥𝗶𝘀𝗸
𝟰 𝗙𝗿𝗮𝘂𝗱 𝗣𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻
𝟱 𝗖𝘆𝗯𝗲𝗿 𝗦𝗲𝗰𝘂𝗿𝗶𝘁𝘆
𝟲 𝗖𝗼𝗻𝘀𝘂𝗺𝗲𝗿 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗣𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻 (𝗹𝗮𝗻𝗴𝘂𝗮𝗴𝗲 𝗼𝗻 𝗦𝗵𝗮𝗿𝗲 𝗢𝘃𝗲𝗿𝗱𝗿𝗮𝗳𝘁𝘀 𝗶𝘀 𝗾𝘂𝗶𝘁𝗲 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁𝗶𝗻𝗴).
Mark Treichel welcomes Dan Berger, the CEO of the National Association of Federally-Insured Credit Unions, to discuss NAFCU's 2023 advocacy priorities. They touch on the organization’s growth opportunities, technology and innovation, regulatory relief, fair market, and data protection. Dan explains the ideal approach in hiring the best team, particularly after the impact of the Great Resignation. Mark and Dan also tap into the importance of data protection in today’s digital age, the tax exempt status of credit unions, the right size of the NCUA board, and a lot more. Tune in to this episode and look forward to NAFCU’s vision and mission for 2023.
Sam Brownell of CUCollaborate made this post on LinkedIn last week:
I am thrilled to announce that CUCollaborate is incubating its first CUSO to pursue "the best idea I have ever had" and that I have successfully recruited Paul Matsui to lead it for us.
The CUSO leverages credit unions' superior pricing to help patients more easily manage their healthcare expenses. Rather than financing medical debt itself, the CUSO uncovers alternative debt expense reduction opportunities that help patients pay off their medical bills successfully without increasing monthly cash outlays or making painful sacrifices. By establishing a meaningful partnership between credit unions and healthcare providers, we will foster healthier, wealthier, and more equitable communities.
The CUSO is fundamentally a healthcare facing company, so I have been lucky enough to recruit Paul Matsui who has over 20 years of experience working with healthcare providers to lead the organization. Most recently, Paul served as Chief Strategy Officer and Chief of Staff at Socially Determined a software and analytics company focused on elevating health equity and outcomes through the quantification and stratification of social risk.
Previously, Paul spent 19 years at the Advisory Board (with my wife Megan Brownell) serving as Executive Director of its data analytics research and technology business, where he was accountable for developing a software ecosystem aimed at the firm's 2,000+ hospital and health system clients.
Earlier in his career, Paul spent six years as an equity research analyst, covering a wide range of companies in the biotechnology, medical device, and medical technology supply sectors on behalf of Smith Barney Citi, Goldman Sachs, and U.S. Bancorp Investments, Inc. Piper Jaffray.
Beginning his career as a bench scientist, Paul worked in labs at the Whitehead Institute for Biomedical Research at Massachusetts Institute of Technology and Harvard Medical School. He holds an AB degree in biochemistry and molecular biology from Harvard University.
If you are interested, we would like to schedule some time for Paul and I to present the opportunity to you and see if it something that your credit union would be interested in helping launch. What day and time would work best for you?
NCUA's Examination reports all state that the exam report documents our conclusions and agreed upon corrective actions.
So what does agreed upon mean?
It means you need to see it before it is final. Sadly that doesn't always happen.
While NCUA has improved their appeal process, formal appeal is still a PAIN.
NCUA encourages you to have an immediate dialogue - but what should you do if they are non-responsive?
We discuss that and more in this episode.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
For details on the 2017 regulation change on appeals see the text below:
Appeals Process for Agency Decisions ImprovedThe process of appealing agency decisions to the NCUA Board will be more efficient, consistent, and transparent under a final rule (new Part 746, Subpart B) approved by the Board.
Several current NCUA regulations include an embedded appeals process, but the new rule will replace those provisions with a uniform, comprehensive set of procedures that will apply in cases in which a decision by a regional director or other program office director is appealed to the Board.
The new rule will affect appeals of decisions in areas including chartering and field of membership, investment authority, conversions and mergers, creditor claims in liquidations, and share insurance determinations. Certain areas, such as formal enforcement actions, prompt corrective action, and material supervisory determinations, would not be covered under the new rule.
A look back at 2022 in Credit Unions, NCUA, and With Flying Colors - and a Look ahead at the opportunities and challenges in 2023.
NCUA will soon act on Field of Membership, the NCUA Exam Priorities, Annual Operating Plan, and Climate-Related Financial Risks.
I am The NCUA Interpreter. I Assist You with NCUA So You Save Time & Money. Former NCUA Executive Director & Examiner. Host of With Flying Colors Podcast.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
https://www.marktreichel.com/
https://www.linkedin.com/in/mark-treichel/
Credit union mergers are essential to everyone in a business, from the board of directors, the staff, down to the members themselves. When a merger happens, every aspect of the operation still needs to run smoothly, and an inclusive culture must continue to be implemented. Learn how credit union mergers should be executed, the best way to find the right business partner, how your branding should look like, and more.
Join Mark Treichel as he interviews the author of NAFCU's Merger Manual, Mike Lussier. Mike also is the CEO of Webster First Federal Credit Union. Together, they discuss a myriad of merger topics, such as considerations for:
· staff
· members
· boards of directors
· advertising
· off-balance sheet liabilities
· system conversions
· branches
· and much more!
Rick Mumm worked at NCUA for 34 years with most of that time being assigned to Field of Membership and new charters. We discuss the changes NCUA made in 2022 on FOM and more.
In 33 years at NCUA I served as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner, and Principal Examiner. I began at the ground level as an examiner. I rose to the top. As Executive Director I supervised your Regional Director. I know how NCUA thinks and why they think it. I know the examination process inside and out. I know how to communicate and negotiate with NCUA. I know how to get NCUA to YES instead of NO.
I can help if you are currently dealing with or thinking about:
An examination that did not go as well as you hoped
An Examination that is in process right now
An examination that is coming soon
Responding to an NCUA or state examination
Assessing a letter to you from your Regional Director or State Regulator
Seeking NCUA or State Regulator approval for an action you desire to take
Assessing actions you will take in response to a Document of Resolution
Receiving a Letter of Understanding and Agreement
Document of Resolution (DOR) Issues
Examiner Findings
Supplementary Facts
CAMEL Code Downgrades
Capital Adequacy
Asset Quality
Management Code
Earnings
Liquidity Code
Sensitivity Code
Commercial Lending MBL Issues
Interest Rate Risk (IRR)
Net Economic Value (NEV)
Secondary Capital
Subordinated Debt
Exit Conference / Joint Conference Challenges
Fair Lending Exam Issues
Field of Membership (FOM) Expansions
CECL Issues
Appeals
Reputation Risk
Net Worth Restoration Plans (NWRP)
Credit risk
Interest rate risk
Liquidity risk
Transaction risk
Strategic risk
Reputation risk
Compliance risk
NCUA's Large Credit Union Program
Transition to the Office of National Examinations and Supervision (ONES)
CFPB
Strategic Planning
Safety and Soundness
Supervisory Committee
Corporate Governance
Bank Secrecy Act (BSA)
NCUA Examination Priorities
NCUA's Examination Guide
National Supervision Policy Manual
Bank Purchases
Letters to Credit Unions
NCUA Regulations
Reach out today to discuss how I can assist you and your credit union.
Headlines are filled with challenges around FTX and stablecoin, making it seem like the industry won't be surviving or worth looking into anymore. But does it really mean that these products should be ignored? In this episode, Mark Treichel interviews Patti Wubbels, an Educational speaker and writer on Digital Assets, Cryptocurrency, DLT/Blockchain and DeFi in the Financial Industry, Consulting on Cost Savings, Revenue Growth and Process Efficiencies, and more! When it comes to vendor selection, Patti is the person to look for expert advice. Tune in and learn why blockchain and cryptocurrency products are still very much worth looking into despite the negative headlines about the industry!
Last Week In Credit Unions Today
Harper on vendor authority
https://www.americanbanker.com/opinion/credit-union-members-deserve-the-same-protection-as-bank-customers?utm_medium=email&utm_source=NCUAgovdelivery
Credit union members deserve the same protection as bank customers
With that statutory expiration, the NCUA lacks the same authority that all other federal banking regulators have to oversee and examine the vendors that depository institutions use for critical services like information technology, loan underwriting, payments and mortgage originations. As a result, the credit union system is vulnerable to exploitation by the cybercriminals, terrorist financiers, fraudsters and other lawbreakers who threaten our nation's economic security and the financial well-being of our citizens.
ECIP
https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses/emergency-capital-investment-program
Richmond City Conservatorship
https://ncua.gov/newsroom/press-release/2022/richmond-city-employees-federal-credit-union-conserved
Board Agenda:
ACTION ITEM: The NCUA Board’s approval of a proposed rule to amend the NCUA’s rules relating to loan participations and eligible obligations.
SUMMARY: The proposed rule would amend the NCUA’s rules regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans (including notes of liquidating credit unions).
The proposed rule is intended to clarify the NCUA’s current regulations and provide additional flexibility for federally insured credit unions to make use of advanced technologies and opportunities offered by the financial technology sector.
The proposal would also make conforming amendments to the NCUA’s rule regarding loans to members and lines of credit to members by adding new provisions regarding indirect lending arrangements and indirect leasing arrangements.
Finally, the proposal would make other conforming changes and technical amendments in other sections of the NCUA’s regulations.
ACTION REQUESTED: Board approval of the 2023 – 2024 operating budget, capital budget, and Share Insurance Fund administrative budget.
RECOMMENDED ACTIONS: As detailed in the staff draft justification and modified by this board action memorandum, the NCUA Board approves: 1. The 2023 operating budget of $344,158,000 and 1,214 positions and the 2024 operating budget of $387,588,000 and 1,240 positions.
FTX SBF Arrested
CUs, Banks May Exit Zelle if Required to Reimburse Scammed Users, NAFCU, Bank Trade Groups Say
https://www.cutoday.info/Fresh-Today/CUs-Banks-May-Exit-Zelle-if-Required-to-Reimburse-Scammed-Users-NAFCU-Bank-Trade-Groups-Say
With Clock Ticking, NAFCU Reminds Congress of What It Would Like to See
https://www.cutoday.info/Fresh-Today/With-Clock-Ticking-NAFCU-Reminds-Congress-of-What-It-Would-Like-to-See
NASCUS, the National Association of State Credit Union Supervisors, is the body that advocates for a strong and healthy state credit union system. Its members include state regulatory agencies, credit unions, credit union leagues, and organizations that support the state credit union system. The NASCUS mission is to enhance state credit union supervision and advocate for a safe and sound credit union system.
In this episode, I talk to NASCUS's CEO, Brian Knight. We discuss:
· NASCUS structure and membership,
· NASCUS Training Offerings,
· What might be coming in 2023 on the State and Federal Legislative Front,
· Trends in Credit Unions,
· And Much More.
In this episode I discuss:
CFPB honing in on HELOCs
NASCUS comments on onerous Sub-debt Rule
CUNA and NAFCU comments on onerous member expulsion
NCUA issues letter on virtual and in person board and member meeting requirements
NCUA Diversity Assessments
and More on Crypto and FTX
marktreichel.com
ncuainterpre
hey, this is Mark Treichel with another episode of With Flying Colors. Today I want to chat about, , some things I've been picking up on by reading the American, , banker and also by listening to a podcast called the ABA Banking Journal, which I'm gonna play a snip of Pure, , shortly, but, There's some interesting things going on in the economy for many reasons, and there was an article in the American Banker, , that was called.
There's an article in the American Banker called How Unrealized Bond Losses Are Hampering the Banking Industry. It's a fascinating article, but it talks about merger momentum slowing in banks because of the upside down nature of hold to maturity, investments, and other investments.
If you will, but, in my mind, I think actually those unrealized bond losses in the credit union industry are likely going to speed up the mergers in credit unions. By the way, mergers in credit unions in 2022 were up about 20% over the 2021 rate. That's if you annualize the three quarters of this. Of this year into a full year.
, mergers are up about 20% and in a minute I'll tell you why I think mergers will likely be going up as well. But here's this, , a couple minute snippet of the ABA Banking Journal podcast that was published, , earlier or mid-November. So one final question for you. The, , um, you know, we, we, we've, we hear a lot about the, , we talk a lot in this industry about the, um, the credit union acquisitions of banks.
Um, I, I don't think, I feel like we haven't seen as many in the, in the last year as we've seen kind of pre, pre pandemic, certainly. Um, what's the, what, what's your read on, , the long term tri on credit unions acquiring tax bank community? Well, you know, number one, um, I don't wanna, you know, downplay the concern that banking industry has over it, but there really haven't been that many in the whole scheme of things.
Right. Um, you know, I mean, it's still a very, very small component of overall bank m and a. Um, that being said, , credit unions are able to pay cash to the seller and in an environment right now where you. The buying power of, , publicly traded banks is, , adjusting. Um, stock deals are maybe becoming a little more expensive.
You know, people who can walk in, it's like buying a house. If somebody can walk in with a cash offer, you have to entertain it, right? So I think we'll see more credit union deals. I think, you know, thanks for better, for worse, have a responsibility to their investors to at least review those offers. , you know, um, and again, you know, it's gonna be hard to compete against a, a group that can pay cash and make the mathematics work like, like these credit union deals.
All right, so that was interesting. I don't know if you caught it, but they talked about what do you think about the acquisition by credit unions?
, Credit unions acquiring tax, paying community banks with a little needle there that it takes taxes out of the system if a, if a bank is acquired by a credit union, , which is there. The ABAs one argument about why it shouldn't be allowed. , and this is, I'm digressing a little bit, but , it was very interesting.
The big difference between a bank acquiring another bank is they acquire it with stock. If stocks, if the stocks are down at both banks, it makes the acquisition less likely to go through at the banking level. Now, credit union deals are cash deals because there is no stock, and that makes them better deals.
And as the, , guest on the show pointed out, I think at the dismay of the ABA person hosting it, , The credit unions are positioned to do it with cash and, , the bank stockholders have a duty to try and get the best return, which is why credit unions often win in that scenario. , but the article, so, so kind of linking that to the article, , the article in the American Banker says Merger momentum has slowed as bank valuations take a hit.
And it goes on to say the unrealized bond l
Hey, this is Mark Treichel with another episode of With Flying Colors. The FTX fiasco, , is amazingly interesting. , it's kind of like driving by a. Crash on the highway. , and you hope that nobody, you know, was involved and lost any money or lost any lives. But, , there's a, a wonderful quote by, , billionaire, ,Warren Buffet who said, only when the tide goes out do you discover who's been swimming naked.
Well, , that quote's been used a lot on different articles and different podcasts and different news articles that I've seen relative to this FTX situation. But today I want to talk about reputation, risk, and offering crypto to your members. So, , there's an article in American Banker dated yesterday by Claire William.
And I would like to discuss the contents of that letter here on this podcast. The article is called F D I C, looking closely at Farmington State Bank in the FTX fiasco, the Federal Deposit Insurance Corporation and the Federal Reserve are looking closely at Farmington State. A small bank connected to the failed crypto exchange ftx.
According to Acting FDI Seed chair Marty Greenberg Ft. FTX bankruptcy pause have revealed that Alameda Research, a hedge fund, affiliated with the exchange invested 11.5 million in the tiny Farmington State Bank, which now does business as Moonstone Bank in Washington State. That's a significant.
Particularly get this for this bank, which has about 21.7 million of assets at the as of the second quarter and has only about 10 million in deposits for most of the decades. So this is extremely small for a bank, , and would be considered small on credit union standards. Article goes on to say that Revelation has spurred questions about Ft.
X's reach within the banking system and Sam. Bankman Frees or SBF as he's been known to be called plans for it in the future, previously thought to be insulated from crypto turmoil. Bank regulators, including Gruenberg, have told Congress that their caution towards the crypto market has helped keep the traditional financial sector safe as crypto markets whipsaw.
Greenberg in a press conference issued after the release of the agency's quarterly banking profile, said that the FDIC and the Fed are scrutinizing the Farmington situation. He's also considering other ways FTX might have ties to the banking sector.
There's a lot of review as well that's going on withFTX. Gruenberg said, we're learning more about the operations of that company and whether there might be any additional connections to the banking system. We're not aware of them now, but there's a careful review ongoing. We'll see what it. Reveal. It's unclear to what extent regulators were involved in Alameda's investment into Farmington State Bank.
Farmington was acquired by a holding company led. Jean Jin, the owner of Dell Tech Bank, whose best known client is the stablecoin issuer tether in 2020. After that, it applied and was approved by the Federal Reserve Bank of San Francisco in 2021. Then Alamia.
Alameda acquired a stake of a little less than 10% than the bank just below the threshold for regulatory approval, huh? Just below the level for regulatory approval trying to stay off the radar in a press release. The bank said it has remained in close communication with our regulators. Throughout its business evolution and has built a robust processes, programs, and controls to ensure all of our activities comply with all applicable laws and regulations.
It says that Alameda has only a non-controlling stake. And that FTX unwinding has unfairly affected its reputation. That's, so that's why I opened with reputation risk. Reputation risk, as you know, is something that NCUA examines you on... be careful offering apps that allow your members to buy crypto - yes it is buyer beware but they may blame you. Is the risk worth the reward?
marktreichel.com
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By notation vote, the NCUA Board approved moving management and oversight of Asset Management and Assistance Center (AMAC) activities from the Southern Region to an independent office led by the President of AMAC.
The NCUA Board also approved by notation vote the transfer of examination and supervision responsibilities for the state of Ohio from the Eastern Region to the Southern Region. Seventeen full-time employees will transfer from the Eastern Region to the Southern Region to support the realignment. Both actions are effective January 1, 2023
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In this episode we discuss the fraud triangle and why NCUA will always do exams onsite.
What is the Fraud Triangle?The fraud triangle is a framework commonly used in auditing to explain the reason behind an individual’s decision to commit fraud. The fraud triangle outlines three components that contribute to increasing the risk of fraud: (1) opportunity, (2) incentive, and (3) rationalization.
This is a quick take with Joe Goldberg - former head of NCUA's Fair Lending Program.
NCUA examines federal credit unions with assets less than $10 billion; state supervisory authorities examine state-chartered credit unions with assets less than $10 billion; and the CFPB examines credit unions with assets over $10 billion.
NCUA offers a number of fair lending resources for credit unions which are available on the Fair Lending Compliance Resources page. Materials include a fair lending guide, regulatory alerts, webinars, HMDA resources, exam procedures, and other related information.
Fair lending laws and regulations include: the Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B; the Home Mortgage Disclosure Act (HMDA), and its implementing regulation, Regulation C; and the Fair Housing Act (FH Act). In addition, the National Credit Union Administration (NCUA) regulations contain nondiscrimination requirements for real estate-related loans. See 12 CFR § 701.31.
At the conclusion of a fair lending examination, a credit union will receive a written examination report including an Overview, Supplementary Facts, Findings, Loan Exceptions and, if applicable, a Document of Resolution.
At the conclusion of a supervision contact, a credit union will receive written results including an Overview, Supplementary Facts, and Findings. If the off-site supervision contact identifies deficiencies, OCFP will provide recommendations for corrective action.
NCUA's Letter:
The National Credit Union Administration (NCUA), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the U.S. Department of Treasury’s Financial Crimes Enforcement Network have prepared a joint statement clarifying our long-standing position that banks and credit unions must take a risk-based approach to assessing individual customer (member) risk. The attached joint statement reinforces the NCUA’s position that no single customer type automatically presents a high risk of money laundering, terrorist financing, or other illicit financial activity risk.
The regulations established in the Bank Secrecy Act (BSA) establish a risk-based approach to assessing customer relationships and conducting customer due diligence. The NCUA expects credit unions to assess the risks posed by each customer individually. Further, the NCUA advises against refusing service or discontinuing service to an entire class of customers based on perceived risk. Credit unions that comply with BSA and anti-money laundering (AML) requirements and have an effective customer due diligence program in place are well-positioned to manage customer relationships and risks appropriately, based on each individual customer relationship.
The Federal Financial Institutions Examination Council’s BSA/AML Examination Manual (Manual) identifies specific customer types to provide examiners with guidance regarding unique characteristics. The Manual is not intended to suggest that those characteristics represent a higher money laundering, terrorist financing, or illicit finance risk. It is ultimately each credit union’s decision to provide or maintain financial services to any customer.
Please contact your Regional Office or state supervisory authority if you have questions about this letter or the attached statement.
NCUA had its November Board meeting with one item. Per the NCUA Board Action Bulletin:
ALEXANDRIA, Va. (Nov. 17, 2022) – The National Credit Union Administration Board held its tenth open meeting—and third in person—of 2022. During the meeting, the NCUA’s Chief Financial Officer briefed the NCUA Board on the performance of the National Credit Union Share Insurance Fund for the quarter ending on September 30, 2022.
“The Share Insurance Fund performed well in the third quarter,” NCUA Chairman Todd M. Harper said. “The changes in the interest rate environment over the last several months increased the income and earnings of the Fund.”
The Share Insurance Fund reported net income of $26.2 million, $20.2 billion in assets, and $73.7 million in total income for the third quarter of 2022. The equity ratio for the Fund remains at 1.26 percent.
Per NCUA policy, the equity ratio is updated on a semi-annual basis. The equity ratio as of June 30, 2022, was 1.26 percent, which remained the same from December 2021, and was calculated using an insured share base of $1.69 trillion on June 30, 2022.
Additionally, for the third quarter of 2022:
- The number of composite CAMELS codes 4 and 5 credit unions increased 2.6 percent from the end of the second quarter, to 120 from 117. Assets for these credit unions increased 2.7 percent from the second quarter to $3.8 billion from $3.7 billion.
- The number of composite CAMELS code 3 credit unions increased 1.7 percent from the end of the second quarter, to 768 from 755. Assets for these credit unions increased 7.6 percent from the second quarter to $47.9 billion from $44.5 billion.
“Unfortunately, the Share Insurance Fund report this quarter also shows another side of rising interest rates with an increase in the number of credit unions with a composite CAMELS code 3, 4, or 5 rating,” Chairman Harper said. “Additionally, several credit unions have experienced liquidity issues recently, including some with more than $1 billion in assets. And, with ongoing inflationary pressures and continued interest rate increases likely, the potential for headwinds slowing the economy and increasing stress on households and financial institutions continues to grow.
“The NCUA Board will continue to monitor trends and developments in the economy, financial markets, and credit unions. If any issues arise, the Board will also be ready to take action to protect credit union members and the Share Insurance Fund.”
At the end of the third quarter of 2022, there were four federally insured credit union failures that cost the Share Insurance Fund $7.0 million in losses.
The third-quarter figures are preliminary and unaudited. Additional information on the performance of the Share Insurance Fund is available on NCUA.gov.
Access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives, and posts videos of open Board meetings online.
On this week's episode I discuss Liquidity with Subject Matter Expert Todd Miller.
Don't miss part 2 tomorrow.
Why discuss Liquidity today?
Many reasons. A great deal of evidence that liquidity risks are increasing.
Inverted Yield Curve - 85 days as of 11/3/2022
Prior inversions over 10 days
– 18 days in May/June of 2007
-185 days in June 2006 through early 2007 (15-16 yrs removed from this)
-226 days in 2000
Inflation – Over 5% annualized since June 0f 2021.
· Last time inflation was over 5% was 1991. (30 years ago). That was also a recession known today as the S&L Crisis. Who knows how this may impact loan performance today. In the banking industry net charge offs were 1.4%, 1.61%, and 1.29% in 1990, 91, and 92. Current bank charge off ratios are under 0.3%, very similar to credit unions.
· Unlikely most management teams today have ever managed in an inflationary environment, compounded by an inverted yield curve.
Prior to Covid the US savings rate was running in the 8% range. It spiked during Covid reaching a high of 33.8% in April of 2020. As late as March of 2021 is was 26.3%. We had 15 months of Covid where the savings rate was in double digits. It’s been under 5% for all of 2022 and was down to 3.5% in July and August. It dropped to 3.1% in September of 2022, the most recent number I have. You can see this in share growth numbers.
Share growth that was double digits from Dec 2020 to March 2022. From March to June, total shares increased by 2.8 billion, but 2.1 billion of that was non-member deposits. Member deposits grew a paltry $754 million or only .04%. Annualized that is growth rate of 0.49%.
Borrowed money increased by $19.8 billion over the same 3 months, an increase of 42.2%. Of that $16.5 billion is less than one year maturity – so overnight most likely. NCUA now includes supplemental capital in borrowings. It is not broken out as separate line item. No longer able to determine what part of borrowed funds is actually being included in capital amounts.
I’m sure with treasury Emergency Capital Investment Program (ECIP) funding, secondary capital amounts also grew. Treasury’s website shows 70 credit unions receiving $2.1 Billion in ECIP Funds. Supplemental capital rules are also new. Interesting that NCUA chose to stop displaying secondary/supplemental capital amounts when it revised the call reports in March of this year.
Per NCUA’s financial trends reports, subordinated debt grew 106% in 2021, and 480% during the first 6 months of 2022. No amounts were reported in the trend reports however.
Loan growth in the same period was $85.3 Billion. How was that funded. Investments dropped $2 million, corporate deposits dropped $11.2 billion, cash with the federal reserve dropped $51.1 billion, and cash in other financial institutions dropped $2.5 billion. Cash and short term investment to assets fell from 16.24% to 12.94%.
I have call report data going back to 2000. December of 2018 is the only time cash and short term investment numbers were lower. In 2018, investment portfolios were within 2% of par values so liquidating investments was a cost effective way to raise liquidity. Current investment portfolio were around 7% underwater in June, probably more today. Liquidating investments may no longer be a reasonable way to raise liquidity.
Asset Quality is still strong from the loan side. Delinquency and net charge off levels are at lowest levels seen in this century. Credit Risk management tools have come a long way in the last 10-15 years. Then again, there has been no inflation in the 21st century so who knows how loan losses will be impacted.
The sudden end to share growth is telling though. We have rising interest rates, and an inverted yield curve. On top of that net worth rates are less today than they were going into the great recession of 2007. Almost all the layers of risk in financial institutions are increasing.
Asset quality issues are at the heart of most liquidity events
In this week's episode I chat with my team member and form CLF Vice President Steve Farrar.
We discuss:
- Purpose of CLF
- Two briefings to NCUA Board in 2022
- Operations of the CLF
- November 2021 Letter to Congress - expiration of temporary improvements
- CLF Borrowing Ability
- Natural Person Membership
- Agent Membership
- Borrowing from the CLF
and much more.
Below are excerpts of NCUA Chairman Todd Harper's statement on the CLF after the October 2022 Board meeting:
"...With more than $29 billion in borrowing capacity, $1.2 billion in total assets, and nearly 4,000 regular and agent members, the CLF is a vital source of emergency liquidity within the credit union system. However, the pending expiration of the temporary CLF enhancements authorized by Congress at the start of the COVID-19 pandemic remains a very real concern.
We already know of several credit unions experiencing liquidity issues in recent months, including some with more than $1 billion in assets. And, with ongoing inflationary pressures and likely continued interest rate increases, there is the potential for strong headwinds slowing the economy and increasing stress on households and financial institutions. Those headwinds could soon result in even more credit unions encountering liquidity issues. So, the CLF must stay alert and ready to support the credit union system and the Share Insurance Fund.
For the CLF to work best, we need a flexible agent member option. By permitting corporate credit unions to become agent members for groups of credit unions, rather than requiring them to join for their entire membership, the CLF becomes a more affordable and attractive option for corporate credit unions to participate in. Without that agent membership, credit unions with less than $250 million in assets will be much less likely to have access to a federal liquidity backstop when they need it.
And, without legislation to extend the temporary CLF enhancement provisions, there will be a $9.7 billion reduction in reserve liquidity for the credit union system at the end of 2022. Likewise, the 3,648 credit unions with less than $250 million in assets that now have access to the CLF through their corporate credit unions will lose a liquidity lifeline. These credit unions include most of our nation’s 509 minority depository institutions.
We know through the painful lessons of the financial crisis more than a decade ago how quickly liquidity can dry up during periods of economic and financial stress. While we are grateful to Congress for allowing the CLF enhancements of the last few years, there is a real need to keep in place the ability of corporate credit unions to serve as an CLF agent for a subset of their members. That authority will allow us to provide emergency liquidity quickly when needed...
Before a storm starts, we need to ensure the liquidity pipelines of the credit union system remain in good working order. That is why my fellow Board members and I continue to call on Congress to make permanent the CLF agent member enhancement. I thank Vice Chairman Hauptman and Board Member Hood for their steadfast efforts in support of this critical legislative goal."
In this episode of With Flying Colors I discuss NCUA's Risk Appetite Statement with ERM Expert David Seibert.
David can be reached at
www.davidseibertconsulting.com
Created by the United States Congress in 1970, the National Credit Union Administration is an independent federal agency that insures deposits at federally insured credit unions, protects the members who own credit unions, charters and regulates federal credit unions, and promotes widespread financial education and consumer financial protection. The NCUA protects the safety and soundness of the credit union system by identifying, monitoring, and reducing risks to the National Credit Union Share Insurance Fund.
The NCUA is subject to a variety of risks that relate to its objectives, strategies, operations, reputation, and environment. Through the NCUA’s Enterprise Risk Management (ERM) program, the agency proactively manages risks to achieve its mission, as well as to maximize opportunities across the agency. The NCUA’s ERM program is overseen by the Enterprise Risk Management Council (ERMC), which was formally established by the Executive Director in 2015. Editorial note: I was the Executive Director that established ERM at NCUA.
Since that time, the ERMC has focused on building foundational elements of the NCUA’s ERM program; identifying, assessing, and prioritizing enterprise-level risks; and developing risk response plans for those risks. The ERMC is comprised of the following NCUA executives:
Deputy Executive Director, serves as ERMC Chair
Chief Financial Officer
Chief Information Officer
Chief Economist
Director,Office of Examination and Insurance
Director, Office of Continuity and Security Management
Director, Office of Business Innovation
Director, Office of Consumer Financial Protection
Director, Western Region
The ERMC's mission is to optimize risk management prioritization and mitigation decisions to minimize the risk that events adversely impact the successful achievement of the NCUA's strategic goals and objectives. Further, the ERMC seeks to establish a risk awareness culture and appropriate risk management processes throughout the NCUA. An effective ERM program is a good management practice. An important part of a successful ERM program is a thorough risk appetite statement.
That statement is a management tool that provides guidance from agency leadership to managers and staff on the amount of risk the NCUA is willing to undertake in pursuit of its objectives. The Federal Chief Financial Officers Council’s ERM Playbook explains that risk appetite statements, “help agencies make risk informed decisions with regard to allocation of resources, management controls, and potential consequences or impacts to other parts of the organization and can reduce surprises and unexpected losses.” 1 The ERMC developed a risk appetite statement for the agency through careful consideration and evaluation of the risks the agency faces, and focused on achieving several programmatic goals, including: Communicating guidelines about the levels of risk the NCUA is willing to accept in pursuit of its mission and goals, Promoting consistency in understanding, measuring, and managing risk across the enterprise, Informing agency responses to risks and decision-making to balance limited time and resources, and Driving a more risk-aware culture. The attached NCUA Risk Appetite Statement would provide greater clarity and transparency about how the agency approaches risks in order to accomplish its mission and to provide important guidance to NCUA staff and stakeholders.
This risk appetite statement will help the NCUA align risks and opportunities when making decisions and allocating resources to achieve the agency’s strategic goals. This risk appetite statement is part of the NCUA’s overall risk management approach, shown in Figure 1. The NCUA will identify, assess, prioritize, respond to, and monitor risks to an acceptable level.
CUCollaborate is a consulting, software development, and digital marketing company that helps credit unions grow. Sam Brownell, its CEO, seeks to help credit unions beat banks. The company focuses on three major areas: consulting, software, and marketing. In this episode, he joins Mark Treichel to share how they have found most of their clients' growth problems in these areas and helped overcome them through their holistic approach that outlines the best growth plan for credit unions. Sam then shares how their software allows interpreting data to provide the best possible results for mitigating the pain points most consumers experience. If you are looking to beat banks and maximize your impact, then don't miss this opportunity to learn how in this conversation with Sam and Mark!
This is a quick take on the NCUA's recent release of a simplified CECL Tool for Small Credit Unions. NCUA issued a press release on September 14th. Which put this tool out there for credit unions under a hundred million to utilize.
In the press release that the tool is intended for use by credit unions with under a hundred million in assets, although it could be used by larger credit unions based on the discretion of their management and auditors.
NCUA followed this up with about an hour long webinar, which is out there on YouTube:
https://www.youtube.com/watch?v=mOCBF0d7SK4
I'm going to highlight about six minutes of thatWebinar:
Comments from NCUA Chairman Todd Harper
Comments from staff on what NCUA Examiners Will Look at in the exam regarding CECL.
When a credit union over $100million may want to use this method - and what they might need to do if they opt to use it, such as reach out to their CPAs and possibly have their methodology validate, and
much more.
NCUA's press release on the CECL Tool:
https://www.ncua.gov/newsroom/press-release/2022/ncua-releases-simplified-cecl-tool-small-credit-unions
NCUA's Link to the tool:
https://www.ncua.gov/regulation-supervision/regulatory-compliance-resources/cecl-resources/simplified-cecl-tool
This Wednesday NCUA has its required public budget briefing (hearing).
The trade groups will say the budget is too high. Other presenters may say the same.
Several of my clients have asked my thoughts on NCUA's draft budget - and that is what I provide in this episode of With Flying Colors.
If you are interested in reviewing NCUA's draft budget it can be found here:
https://www.ncua.gov/files/publications/budget/budget-justification-proposed-2023-2024.pdf
When it comes to credit transactions or lending, redlining is a real thing. Fair lending must be the standard. So in order to help prohibit these acts of discrimination, Mike Taliefero co-founded ComplianceTech. And together with his business partner was able to develop software that is capable of combining HMDA data with loan origination data. Their suite includes Lending Patterns, CRA Check, Fair Lending Magic, Fair Servicing, and more. To learn more about ComplianceTech and fair lending, join Mark Treichel as he talks to the co-founder of ComplianceTech Mike Taliefero. Discover how and why ComplianceTech started. Learn how a fair lending compliance program should look in terms of staffing, organization, and scope of review. It's all about due diligence and Mike believes in that. Learn more about what ComplianceTech offers today.
Credit unions make a great impact on people's lives and on the communities where they operate. But they cannot do that without corporate governance. Credit unions can have tremendous operational and financial success, but if they don't have governance, they won't be able to function fully. They'll have ethical issues inside, and that is something that you can't just wish away.
In this episode, Mark Treichel speaks with Michael Daigneault, CEO of Quantum Governance. They discuss all the different aspects of corporate governance at credit unions. Discover the three-legged stool of credit union governance. Learn why supervisory committees are important and what credit union boards are doing wrong. Start building a culture of leadership and trust in your credit union today!
NCUA proposed a rule which revises how federal credit unions can expel members.
The NCUA Board unanimously approved a proposed rule that would amend the standard federal credit union (FCU) bylaws to adopt a policy by which a FCU member may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors. Currently, a credit union could expel a credit union member in two ways: by a two-thirds vote of the membership present at a special meeting called for that purpose, and for non-participation in the affairs of the credit union as specified in a policy adopted and enforced by the board.
NCUA Chairman Todd M. Harper said, “While there are admittedly times in which the expulsion of a member is necessary to protect credit union members and staff, this is a power that credit unions should rarely use. That’s because the Federal Credit Union Act exists so that people, particularly those of modest means, can access safe, fair, and affordable financial services. That is the statutory mission of credit unions. So, in acting today, we want to preserve this guiding principle.”
Under the Credit Union Governance Modernization Act of 2022, enacted by Congress on March 15, 2022, the NCUA has until September 15, 2023, to develop a final rule that FCUs may adopt to expel a member for cause.
Every quarter NCUA Board briefs the credit union community on the state of the NCUSIF - National Credit Union Share Insurance Fund.
In this episode I summarize what NCUA said during its one hour briefing and what my take is on what it means for credit unions.
I discuss:
CAMEL Codes
Insurance Premiums
Insurance Dividends
The health of the fund.
How inflation, tightening liquidity, and the economy can impact the insurance fund
Small Credit Unions potentially losing access to the Central Liquidity Facility
& More
https://www.ncua.gov/files/agenda-items/share-insurance-fund-board-briefing-20220922.pdf
Earlier this month NCUA issued a Letter to Credit Unions that revises and updates NCUA's Interest Rate Risk Supervisory Guidance. NCUA also conducted an industry webinar on 9/14/22. On this episode I interview Subject Matter Expert Todd Miller on the letter, and the webinar. We recorded this podcast immediately after the webinar to get our instant response to what was said, and what wasn't said.
Clarifying When a DOR to Address IRR Is Warranted
A DOR is not required for any NEV Test or ENT risk classification alone. Similarly, a credit union is not expected to have a plan of action just because their IRR classification is high. Instead, the need for a DOR and a written plan of action are to be determined on a case-by-case basis. The following are examples of when a DOR should be considered:
- The credit union’s level of IRR represents an undue risk to the Share Insurance Fund, and the credit union is not taking appropriate and prompt action to address its level of IRR.9
- The credit union has high IRR and has not adequately updated its approach to managing its interest rate, liquidity, and related risks for current market conditions.
- The credit union has a material governance deficiency (identify, measure, monitor, and control) relative to its level of IRR.10
The following are examples of when a DOR may not be necessary:
- The migration to a high risk classification in the NEV Test or ENT is primarily from a rapid change in interest rates. However, examiners should focus on how the credit union’s management of IRR has been adjusted to the new interest rate environment.
- The credit union has already acted or has an adequate plan to adapt to the current interest rate environment.11
Providing Examiners More Flexibility in Assigning IRR Supervisory Risk Ratings12
Examiners will assign the IRR rating based on the quantitative NEV Test or ENT but may improve the rating on other factors. If the NEV Test or ENT show a high or moderate risk classification, examiners may adjust the IRR rating up or down. While these instances may occur, it would be unusual for an examiner to improve the IRR rating when the NEV Test or ENT results in a high risk classification. This scenario will most often result from borderline moderate- to high-risk classifications, though could occur in low- to moderate-risk classifications, as well. For example, in a borderline case, conservative assumptions in the IRR model combined with a low risk qualitative rating may be sufficient for the examiner to improve the credit union’s IRR rating, whereas the opposite may warrant a downgrade. When considering a change to the IRR rating, examiners will fully document the quantitative and qualitative factors that warranted the change to the rating.
The review of a credit union’s IRR may result in a high IRR rating and may also warrant a change in the “S” (Sensitivity to Market Risk) CAMELS component rating.
Revising Examination Procedures to Incorporate Updated Review Steps When Assessing How a Credit Union’s Management of IRR Is Adapting to Changes in the Economic and Interest Rate Environment
Examiners use the IRR Workbook as a job aid when considering topics and questions during the review of IRR. Recognizing the current volatility of economic and interest rate environments, the following topics will be integrated into the IRR Workbook along with a new resource tab (High IRR Job Aid) to understand the range of scenarios and mitigation strategies.
The integration of these topics will expand on existing review steps, when applicable for a credit union. For example, if a credit union holds total assets between $500 million and $10 billion with a high NEV Test risk classification, the examiner review will include the source of high IRR, risk management and controls, and potential impact on earnings and capital. Credit unions with total assets exceeding $10 billion require all review steps in the IRR Workbook, regardless of the risk classification.
In this episode of With Flying Colors, Mark Treichel interviews Dan Prezioso, a Partner at Olden Lane. Olden Lane provides financial services to credit unions throughout the United States including advising and assisting in the raising of subordinated debt (previously known as secondary capital).
We discuss the topics below (and many more):
● Current Trends In Sub Debt
● Purposes of Sub Debt
● NCUA Letter to Credit Unions – Evaluating Credit Union Plans
● Low Income Designated Credit Unions
● ECIP
● Risk-Based Capital
With respect to an Issuing Credit Union that is a complex credit union (500M) and not a LICU, the aggregate outstanding principal amount of Subordinated Debt is included in the credit union's RBC Ratio. If a credit union is both a LICU and complex, the aggregate outstanding principal amount of Subordinated Debt, including Grandfathered Secondary Capital, will count towards that credit union’s net worth ratio and RBC Ratio.
Today, we discuss NCUA Letter to Credit Union's #22-CU-08 Risk-Based Approach to Assessing Customer Relationships and Conducting Customer Due Diligence with returning guest Deborah Arndell, President of ARMOR Advisory Services.
The National Credit Union Administration (NCUA), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the U.S. Department of Treasury's Financial Crimes Enforcement Network have prepared a statement. It clarifies the long-standing position that banks and credit unions must take a risk-based approach to assess individual customer risk. The attached joint statement reinforces the NCUA's position that no single customer type automatically presents a high risk of money laundering, terrorist financing, or another illicit financial activity risk.
The regulations established in the Bank Secrecy Act (BSA) establish a risk-based approach to assessing customer relationships and conducting customer due diligence. The NCUA expects credit unions to assess the risks posed by each customer individually. Further, the NCUA advises against refusing or discontinuing service to an entire class of customers based on perceived risk. Credit unions that comply with BSA and anti-money laundering (AML) requirements and have an effective customer due diligence program are well-positioned to manage customer relationships and risks appropriately, based on each customer relationship.
The Federal Financial Institutions Examination Council's BSA/AML Examination Manual (Manual) identifies specific customer types to guide examiners regarding unique characteristics. The Manual is not intended to suggest that those characteristics represent a higher money laundering, terrorist financing, or illicit finance risk. Ultimately, each credit union decides to provide or maintain financial services to any customer.
Don't hesitate to get in touch with your Regional Office or state supervisory authority if you have questions about this letter or the attached statement.
At its July Board Meeting NCUA conducted a briefing on the budget year to date and discussed plans for this year's public budget briefing.
I provide you with my thoughts on the statements of NCUA staff and NCUA's board during the briefing, with actual footage from NCUA's youtube recording of the meeting.
NCUA's full July Board Meeting can be found here:
https://www.youtube.com/watch?v=bj7kUqbc2o4&t=5530s
NAFCU's recent letter to NCUA has suggestions on how to improve the bank purchases and credit union to credit union mergers.
In this episode I provide my take on their suggestions.
Marktreichel.com
In this episode I discuss NAFCU's recommendations to NCUA relative to subordinated debt for Low Income Designation Credit Unions.
The legal costs for small credit unions is indeed a burden and preventing many from getting subordinated debt that would help the credit union and its members.
Marktreichel.com
NAFCU recently wrote NCUA and requested many regulation changes.
In this episode I discuss their proposals on NAFCU's letter on Bylaws, Member Expulsion and frequency of credit union board meeting requirements.
www.marktreichel.com
At its July Board meeting, NCUA proposed changes to its rules for credit unions on Cyber Incident Notification Requirements. In this episode I provide commentary on the rule, and also include publicly available discussions at the board table from the NCUA Board: Todd Harper, Kyle Hauptman, and Rodney Hood, as well as NCUA staff.
NCUA's full board recording can be found here: https://www.youtube.com/watch?v=bj7kUqbc2o4&t=5530s
NCUA's proposed rule language can be found here:
https://www.ncua.gov/files/agenda-items/cyber-incident-proposed-rule-20220721.pdf
NAFCU wrote NCUA on regulations it recommends be changed. In this podcast I discuss my take on NAFCU's suggestions on Capital Adequacy relative to large credit union of $10 billion in assets.
www.marktreichel.com
A CUSO (Credit Union Service Organization) is an organizational entity owned by credit unions that provides at least four types of loans: residential mortgage, business, student, and credit card. Unfortunately, as the years progressed, it became quite archaic for CUSO not to have the lending powers assist credit unions in all types of loans. And in October 2021, changes were made that expanded its activities and services. Helping you keep up to date with the latest on CUSO, Mark Treichel invites a guest who has been assisting credit unions in finding ways to collaboratively work with other credit unions and third-party services. In this episode, Brian Lauer of Messick Lauer & Smith P.C. helps untangle the knots made by the movements of CUSO and dives deep into the new CUSO regulation, CUSO trends, and why every credit union should consider investing in a CUSO. He also talks about it in relation to FinTech and cryptocurrency. Interested to learn more? Tune into this conversation!
A number of banks in America today are for sale or thinking about selling. That is why if you’re thinking of bank acquisitions, now is the moment to make the decision. To help you understand more the trends in credit union mergers and acquisitions, Mark Treichel chats with Michael Bell of Honigman LLP. Mike pioneered credit union bank purchases in 2008/09, handling a massive percentage of all credit union bank purchases. In this episode, they discuss bank acquisition trends, politics, branch acquisitions, credit union mergers, and more. Mike also offers advice on how best to play the field smart, giving you strategies as well as insights on how he has been helping clients throughout the years. Join this conversation to learn more!
In this episode I discuss best practices on vendor management and contract management with Subject Matter Expert Brent Lapp of Strategic Resource Management (SRC).
SRM (Strategic Resource Management) has been selected by more than 700 financial institutions to advise in areas such as payments, digital banking, core processing, and operational efficiencies. The company has unlocked billions of dollars in value and improved the competitive advantage of its clients with a reputation for industry-leading subject matter expertise, a proprietary benchmark database, and proven negotiating skills.
Visit https://www.srmcorp.com for more information and follow the company @SRMCorp.
NCUA Board Approves Threshold for Determining the Appropriate Supervisory OfficeNCUA raised the threshold of who reports to the Office of National Exams & Supervision to $15B. NCUA makes it clear this is not regulatory relief and simply a budget saver. In this episode I talk about the missed opportunity for reg relief and whether or not this is really a budget saver (the devil is in the details).
The NCUA Board approved final that amends the NCUA’s regulations to change the $10 billion asset threshold for assigning federally insured credit unions to the Office of National Examinations and Supervision (ONES).
“With the rapid balance sheet growth across the credit union system since the onset of the pandemic, especially for the largest of credit unions, recalibrating the threshold was always a question of when, not if,” Chairman Harper said. “Approval of the final rule is a significant acknowledgement of the industry’s ongoing maturation and the evolving role the NCUA plays in supervising and insuring our nation’s largest credit unions. This change provides for new development opportunities for examiners, providing a smoother transition for consumer credit unions that will eventually transfer to ONES’ supervision, and enhancing knowledge sharing and expertise between ONES and regional staff.”
Effective January 1, 2023, credit unions with assets between $10 billion and $15 billion will be supervised by their appropriate Regional Office. All credit unions above $10 billion in assets currently supervised by ONES will continue to be supervised by that office under the final rule. Credit unions that cross the $15 billion threshold will by supervised by ONES. The proposed rule does not alter any other regulatory requirements for credit unions covered under these regulations.
ONES began operations in 2013 and oversees the largest and most complex credit unions in the credit union system. It also supervises the corporate credit union system.
https://www.youtube.com/watch?v=bj7kUqbc2o4&t=3938s
www.marktreichel.com
Everything you need to know about Document of Resolutions.
NCUA's guidance to you and staff are located in the Examiner's Guide, National Supervision and Policy Manual, and Letter to Credit Unions.
I discuss this guidance and what it means for you.
https://www.ncua.gov/files/publications/guides-manuals/national-supervision-policy-manual.pdf
https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/examination-report-modernization
NCUA uses both informal and formal Enforcement Actions when conducting exams. In NCUA's 2021 Annual Report they provide chart with five years of trends on Enforcement Actions - WHICH ARE WAY DOWN FROM 2017. In this episode I provide my take on why this trend is occuring and where it may go from here.
Per NAFCU:
Administrative agencies – including the NCUA and CFPB – have released their spring regulatory agendas, which include several NAFCU and credit union advocacy priorities, as well as already introduced or included items on previous rulemaking agendas.
Here are a few notable items included on the agencies’ spring rulemaking agendas:
NCUA
- Digital Assets and Related Technologies: Scheduled for December 2022, the NCUA will propose a final rule on decentralized finance and digital assets as they relate to the credit union industry. The agency will consider both the comments on the Request for Information and the recent executive order in evaluating what if any proposals should be forthcoming. NAFCU’s Digital Assets Working Group meets regularly to discuss digital assets updates.
- Fintech: A fintech proposed rule that Board Member Hood has been championing to provide more flexibility for a credit union to take advantage of advanced technologies and opportunities offered by the fintech sector, has been scheduled for September 2022. NAFCU has urged regulators to ensure a level-playing field between credit unions and fintechs.
- ACCESS Initiative: Scheduled for September 2022, the NCUA Board is considering the issuance of a proposed rule to amend its chartering and field of membership regulations that would remove outdated requirements, simplify the charter approval process, and clarify regulatory language. NAFCU has been a strong proponentof such amendments.
- Cybersecurity: The NCUA is reviewing the federal banking agencies' November 2021 rulemaking titled, ‘Computer-Security Incident Notification Requirements for Banking Organizations and Their Bank Service Providers,’ and may issue similar requirements for the credit union system this summer.
I am hearing from several directions that Net Economic Value (NEV) High and Extreme Risk Ratings are Surging. In this episode we discuss what NCUA is doing about it and what that means for you.
NCUA Chairman Todd Harper recently stated
"The NCUA is aware of industry concerns about how examiners will supervise for market risk, given rising interest rates. Interest-rate risk has long been a supervisory priority for the NCUA. We know that credit unions have planned accordingly for changes in interest rates over the years, even more so since the last update in the NCUA’s supervisory procedures in 2017.
The NCUA, as a result, is now developing guidance for examiners on how to work with credit unions whose sensitivity to market risk and other risks has increased due to the ongoing uptick in interest rates and related economic uncertainty. We will continue to treat all credit unions equitably during the examination process in the months ahead."
What form might this guidance take? Give a listen to hear my thoughts.
Simply put, credit risk is the risk of loss due to a borrower not repaying a loan. Today, Mark Treichel interviews subject matter expert Vin Vieten on rating credit risk.
Why did NCUA make it a Regulatory requirement in $723.4(g)? Credit risk ratings must be assigned to commercial loans at inception and reviewed as frequently as necessary to satisfy the federally insured credit union's risk monitoring and reporting policies, and to ensure adequate reserves as required by generally accepted accounting principles (GAAP). Tune in and learn all this and more.
If you are someone who is thinking about getting into commercial lending, this is an episode you don’t want to miss.
NCUA Board meeting today discusses the exam survey pilot and talks about what regulations are coming soon.
Everyone needs to start assessing their risks, especially in a post-pandemic environment. Enterprise risk management is the process of identifying potential risks to the achievement of strategic objectives. And implementing an ERM program at a credit union does come with advantages.
In this episode of With Flying Colors, Mark Treichel interviews David Seibert, an Enterprise Risk Management Expert, about all things ERM. David is also the President, Owner, and Chief Risk Officer of David Seibert Consulting.
Listen in as they discuss the principles of ERM and why it helps crystalize strategy efforts. Also, discover why National Credit Union Administration (NCUA) responds positively to credit unions with a strong ERM structure. Start assessing your risks with David today!
In this episode of With Flying Colors Mark Treichel interviews LoanStreet's Founder Ian Lampl on both sides (buying and selling of loans) and why this type of lending is likely going to continue to grow. LoanStreet is an innovative platform for the syndication of loans. Through automation and standardization, LoanStreet enables institutions to efficiently and cost-effectively syndicate their loans to interested investors on a per use basis. LoanStreet saves you time and money while diversifying your balance sheet and increasing your non-interest income.
During its February Board Meeting, NCUA proposed a wise regulation to raise the asset threshold of credit unions that report to the Office of National Examinations and Supervision (ONES) from $10 billion to $15 billion. Buried in the details of the regulation is a statement by Chairman Harper that "… In the longer term we should, in my view, consider the development of a regional large credit union program for larger credit unions." What this means for all credit unions (and more) is discussed in this quick take episode.
The NCUA Board met today May 26th and had only one agenda item: the Share Insurance Fund Briefing. However the board dropped some interesting tidbits in like:
guidance for examiners on how to handle the interest rate risk spike is coming soon.
Hood wants to see a FINTECH rule sooner than later
CAMEL ratings have nowhere to go but down
NCUSIF in good shape
NCUA Investment ladder extending to ten years
Most Losses coming from fraud
and more!
The NCUA Board met today May 26th and had only one agenda item: the Share Insurance Fund Briefing. However the board dropped some interesting tidbits in like:
guidance for examiners on how to handle the interest rate risk spike is coming soon.
Hood wants to see a FINTECH rule sooner than later
CAMEL ratings have nowhere to go but down
NCUSIF in good shape
NCUA Investment ladder extending to ten years
Most Losses coming from fraud
and more
In the January 2022 NCUA board meeting, it was voted that a proposed rule on succession planning was approved. In this episode of With Flying Colors, Mark Treichel is flying SOLO with a quick take on why NCUA should not regulate succession planning. Regulatory burden is at an all-time high, and there is no reason for this regulation. Listen here to know exactly why!
Today, more than 2,000 credit unions are offering participation loans. The total outstanding balance of participation loans increased 28% in 2021, from $46 billion to $59 billion – and it did draw NCUA's attention as an Examination Priority for 2022. In this episode, Mark Treichel interviewsr on loan participation and eligible obligations. Listen to this conversation to hear what NCUA will consider when reviewing your loan participation. Tune in also for a discussion on the difference between participations and eligible obligations.
Since the Home Mortgage Disclosure Act changes every year, you need to refresh your knowledge about it annually. Mark Treichel delves into HMDA with expert Joe Goldberg. Together, they talk about the fundamentals of this act, why the government implements it, and why it must not be seen simply as a financial burden. Joe breaks down the criteria to meet and data points to collect to become eligible this 2022. He also discusses HMDA exemptions that would impact credit unions and the other agencies this act is being shared to by the authorities.
Risk management is a big part of the lending space. Commercial lending risks have to be studied and analyzed, both for the sake of the borrower and the lender. In this episode, Mark Treichel and subject matter expert Vin Vieten tackle managing commercial lending risks in credit unions. Vin discusses the changes to the rules and gives us a look at NCUA resources on risk management. Tune in and learn more about credit unions and financing in America.
An organization needs to grow with good policies for better management and outcomes. This allows board members to understand the processes deeply and provide them the opportunity to ask better questions that can lead the credit union to a better place. In this episode of With Flying Colors, Mark Treichel talks with subject matter expert Todd Miller on the role and elements of good policies. Todd worked at the National Credit Union Administration for 34 years as an Examiner, Problem Case Officer, Regional Capital Market Specialist, and Director of Special Actions. Join in as he discusses the reasons for, general thoughts on, and common elements of good policies. Equipping yourself with this information can help you reach the success you have always aimed at.
Fair lending guarantees that everyone has equal access to lending opportunities. This puts everyone on an even footing and avoids discrimination. In this episode, Mark Treichel speaks with Subject Matter Expert Joe Goldberg on all things related to Fair Lending. While at the NCUA, Joe supervised their Fair Lending Program. Joe knows what examiners look for, which he discusses here in great detail. Join the discussion and learn more about fair lending and how it helps credit unions.
Mark Treichel sits with Deborah Arndell, the President of ARMOR Advisory Services, to discuss Bank Secrecy Act best practices. Do you want to learn more? Don't miss out on this information-packed episode!
NCUA issued Letter to Credit Unions 22-CU -06 Today. Which stated:
In July 2021, the NCUA announced the implementation of Phase 1 of its phased approach to returning to onsite operations in Letter to Credit Unions, 21-CU-06. Based on new guidance from the Centers for Disease Control and Prevention (CDC) and the Safer Federal Workforce Task Force, the agency will enter the second phase (Phase 2) of resuming its onsite operations on April 11, 2022.
Phase 2 permits NCUA staff to volunteer to work onsite, including conducting examination and supervision work at credit unions located in counties with low or moderate COVID-19 community levels, as defined by the CDC. Onsite work in counties with high COVID-19 community levels may be allowed when necessary and with prior approval from NCUA management.
During Phase 2, the agency will continue to conduct examination steps offsite when feasible and appropriate. When scheduling examinations, the NCUA will continue to take into account any challenges a credit union is facing, such as the availability of key staff, and will work with credit union management to identify a suitable time to conduct the examination.
The well-being of agency staff and credit union employees remains a top priority of the NCUA. NCUA staff working onsite in credit unions will generally be expected to follow credit union policies related to safety, to the extent they exceed the NCUA’s safety protocols for Phase 2.1 Also, the NCUA will continue to maintain heightened safeguards in the agency’s facilities to ensure the health and safety of staff and visitors.
The agency will continue to monitor the course of the pandemic closely and adjust workforce safety plans, as necessary. We will notify credit unions of any changes to the agency’s operating posture. If you have questions, please contact your NCUA regional office.
If you have commercial member business loans you need to listen to this episode. I interview Subject Matter Expert Vin Vieten on many aspects of commercial lending, including Financial Analysis, Credit Proposals & Global Cash Flow. Vin helped write NCUA's commercial lending regulation, trained its examiners and helped write NCUA's examiner guide.
Field of membership is an important aspect of life for credit unions. Membership affects many parts of how unions operate. In this episode of With Flying Colors, Mark Treichel and Rick Mumm talk about Field of Membership, Low Income Designations, and underserved areas. Rick dives into the different nuances of field of membership, by-law changes, mergers, and credit union designations. Looking for more? Then tune in for even greater insights from Mark and Rick.
On the Episode of With Flying Colors I speak again with Subject Matter Expert Vin Vieten on commercial lending and member business loans (MBLs). Specifically, we discuss Credit Proposals, Financial Analysis and Global Cash Flow.
The Federal Home Loan Bank (FHLB) of Atlanta offers a safekeeping program that's second to none. Mark Treichel introduces Alonzo Swann, a credit union strategist at the Federal Home Loan Bank of Atlanta. Alonzo talks with Mark about the many benefits of joining an FHLB. In fact, any credit union that's doing mortgages should be a member. Just like cooperatives, FHLBs make product decisions according to their members’ needs. There are consistent regulatory updates as well to make sure everything runs smoothly. If you want to know more about the benefits of joining federal home loan banks, this episode is for you.
In this Special Edition of What Happened at NCUA Today I discuss my first take on the NCUA Board agenda from March 17, 2022. The agenda had 3 items:
The 5 Year Strategic Plan
The Annual Plan
Board Briefing on the Corporate Resolution Program
Highlights include a discussion on NCUA's 2022 focus on Share overdraft programs, once a Low Income Credit Always a Low Income Credit Union, and how playing poker relates to the Corporate Resolution,
Net Economic Value plays a key role in the NCUA examination. In this Episode Expert Todd Miller discusses the ins and out of Net Economic Value (NEV), how to choose to make our buy, and comparisons to Income Simulation.
In Today's episode we discuss Credit Culture as it relates to commercial loans at your credit union. My guest Vin Vieten has 35 plus years in commercial lending, including 11 years at NCUA where he helped write NCUA's commercial lending regulation and train NCUA Regional Lending Specialists.
Should you "go along to get along" with things in your examination that you don't agree with? Every credit union has been at this fork in the road. Appeals can be successful, but following the rules and choosing the right things to appeal is important. In this episode Subject Matter Expert Todd Miller and I discuss every aspect of appealing within NCUA's Regional office structure.
Mark Treichel interviews former NCUA Subject Matter Expert Steve Farrar on credit union capital. While at NCUA Farrar was the "go to guy" for capital issues in the Office of Examination & Insurance.
In this episode I talk to former NCUA Subject Matter Experts Farrar and Miller on the NCUA Exam Priorities Letter to Credit Unions for 2022. Topics range from Loan Participations, Fraud, the Fraud Triangle, Merit, CAMELS, taping your examiner during official meetings, and more.
Every year National Credit Union Administration issues a guidance letter that outlines the supervisory priorities and other aspects of the agency’s examination program. NCUA focuses its examination activities on the areas that pose the highest risk to credit unions, credit union members, and the National Credit Union Share Insurance Fund. NCUA increased its number of priorities 57 percent over last year (and the past five years for that matter). Tune in to hear 100 years of NCUA expertise discuss what this means for credit unions.
Link to NCUA's Priority Letter:
https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/ncuas-2022-supervisory-priorities
After 33 plus years at NCUA I decided to "retire". I always knew I wanted to dip my toe into the consulting world, but the pandemic actually led me to throw more energy into building my consulting business. In 2021 I was busy helping clients and having a blast doing so. I provide a summary of some of the topics that I have worked on with credit unions and credit union related organizations. I also discuss topics of upcoming episodes that will be conversations with Subject Matter Experts.