Removing Barriers Blog

NCUA Board Meets to Discuss Adding 'S' to CAMEL
Posted June 16, 2016 by CUNA Advocacy

At today's NCUA Board meeting, the Board received a briefing on developments concerning the NCUA’s ongoing efforts to revise supervision with respect to Interest Rate Risk and discussed the possibility of adding an “S” to the CAMEL rating system.  No action was taken at this meeting to change any policy or procedure, nor was there a vote on whether or not to add the “S” to CAMEL.

Staff noted that most of the other FFIEC regulatory agencies have added an “S” to account for sensitivity to interest rates and have separated the rating for Liquidity as well as 16 state supervisory authorities.  NCUA has made several revisions to its interest rate supervisory approach recently and is in the process of training examiners on interest rate risk.  They are in the process of including the approaches in the examiners guide and anticipate issuing a Letter to Credit Unions, possibly in August once they are finalized for use by credit unions. 

Chairman Metsger noted that changes in this area will be a multi-year process and will play a role in the exam process restructuring that is occurring simultaneously.  The pros and cons of adding a separate “S” were discussed.  The agency believes that the addition of an “S” should not increase the regulatory burden on credit unions significantly, but instead allow more transparency by providing for separate reporting of the “L” and “S” components. 

However, it should be noted that it appears that some of the techniques used by the NCUA may in fact end up supplanting some existing policies and guidelines already existing in CU policies.  This will need to be reconciled as the NCUA moves forward with the rule.

The Benefits for Credit Unions:

  • Shifting the focus towards IRR outliers;
  • Uniform, measurable, consistent and transparent IRR measure;
  • Increase clarity of supervisory expectations;
  • Greater examiner consistency;
  • Risk-focused discussions (majoring in majors); and
  • Reduced examination burden for most CUs

The potential Criticisms are as follows:

  • “One size fits all”;
  • Uniform treatment of NMS values;
  • Shock-test thresholds may supplant internal policy limits;
  • Supervisory test may reduce scope and rigor of risk management programs;
  • Shock test model will require adjustment over time; and
  • Bank supervisors have not adopted a standardized supervisory metric. 

The Board also considered a Proposed Rule, Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule, and an Interim Final Rule, Part 747, Statutory Inflation Adjustment of Civil Money Penalties.  Following the open board meeting the Board considered a Supervisory Matter which was closed to the public.

Proposed Rule, Part 705, Technical Amendments to Community Development Revolving Loan Fund Rule.

The Board approved several technical amendments to NCUA’s rule governing the Community Development Revolving Loan Fund.  The amendments made the process more succinct and easier to use by credit unions.  Many of the amendments adopt current practices, eliminate some unnecessary processes, and overall make the rule more user friendly.  No overall substantive changes (other than procedural matters) are made to the program.

Interim Final Rule, Part 747, Statutory Inflation Adjustment of Civil Money Penalties.

The Board approved and Interim Final Rule to adjust the range of available Civil Monetary Penalties for inflation.  This is a statutory requirement that will need to be adjusted again in January of 2017.  The rule does not require the NCUA to make assessments at the maximum level and in fact the NCUA has never assessed a CMP at the maximum level.  Although the Board allowed for a 30 day comment period, there really is little discretion that the Board can exercise in this area since the requirement is statutory.