Skip to main content

NCUA Identifies Supervisory Priorities for 2024

ALEXANDRIA, Va.–In a new Letter to Credit Unions, NCUA has outlined its supervisory priorities and other updates for its 2024 examination program.

The agency said the areas identified are those with the highest risk to credit union members and the insurance fund.

As CUToday.info has previously reported, growing financial strains and liquidity risks are cited by the agency, as well as the growth in the number of composite CAMELS code 3, 4, and 5 credit unions. 

The agency further noted:

NCUA 2
  • Its exam flexibility initiative will continue in 2024, extending the exam cycle for certain credit unions.
  • It will continue its Small Credit Union Exam Program in most federal credit unions with assets of $50 million or less.

Supervisory Priorities for 2024

Below is an overview of the areas where NCUA said it will focus its examinations this year:

Credit Risk

“Economic conditions continue to change the credit risk environment in the credit union industry, as inflation, high interest rates and borrowing costs, declining savings levels, and the end of pandemic-era stimulus and relief programs have negatively impacted some members’ ability to repay their debts. Credit unions’ loan portfolios expanded faster during 2022 than any year within the last 30 years, while aggregate loan performance began showing signs of deterioration in 2023,” NCUA said. 

Examiners will review:

  • Existing lending programs’ soundness
  • Credit union risk management practices, including any adjustments a credit union made to loan underwriting standards, portfolio monitoring practices, modification and workout strategies for borrowers facing financial hardships, and collection programs. 
  • Policies and procedures related to the Allowance for Credit Losses (ACL), documentation of the ACL reserve methodology, the adequacy of ACL reserves, and adherence to generally accepted accounting principles.

Liquidity Risk

The agency said pressure in deposit pricing and the use of wholesale funding is accelerating as alternative funding options, while new lending, participations, and loan sale markets may slow. In addition, member behaviors and risk relationships are also changing,  combining to create liquidity challenges and increased risk to earnings and capital.

“Increased liquidity risk and uncertainty heighten the need for credit unions to prepare for contingency funding needs. Section 741.12 of the NCUA’s regulations contains scaled credit union contingency funding plan expectations,” NCUA said. 

It noted that in previously released Letter to Credit Unions 23-CU-06, Importance of Contingency Funding Plans, adding an addendum to the 2010 Interagency Policy Statement on Funding and Liquidity Risk Management, reinforcing the need to adjust to changing market conditions. 

“In evaluating the “L” component of CAMELS to determine the adequacy of a credit union’s liquidity risk management framework, examiners will continue to consider the current and prospective sources of liquidity compared to funding needs,” NCUA said.

The agency said examiners will:

  • Review the credit union’s policies, procedures, and risk limits
  • Evaluate the adequacy of the credit union’s liquidity risk management framework relative to its size, complexity, and risk profile.

It will also continue to assess liquidity management by evaluating:

  • The 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 cost of various funding alternatives and their impact on earnings and capital.
  • The diversity of funding sources under normal and stressed conditions.
  • The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls.

Consumer Financial Protection

The NCUA said it will continue assessing federal credit unions’ compliance with applicable consumer financial protection laws and regulations, including:

  • Overdraft Programs. In 2024, examiners will continue an expanded review of credit unions’ overdraft programs, including website advertising, balance calculation methods, and settlement processes. NCUA said it will also continue to evaluate adjustments credit unions made to their overdraft programs to address consumer compliance risk and potential consumer harm from unexpected overdraft fees.
  • Fair Lending. Examiners will review policies and practices for redlining, marketing, and pricing discrimination risk factors.
  • Auto lending. Examiners will review credit unions’ disclosures, policies, and practices to assess compliance with the Truth in Lending Act as implemented by Regulation Z. Examiners will also review credit unions’ policies regarding Guaranteed Asset Protection insurance.
  • Policies and procedures governing compliance with flood insurance rules.

Information Security/Cybersecurity

With cybersecurity, the agency said examiners will continue to assess whether credit unions have implemented robust information security programs to safeguard both members and the credit unions themselves. 

“Examiners will continue to utilize the information security examination procedures in 2024, ensuring a thorough evaluation of cybersecurity measures,” NCUA said. 

NCUA further noted it implemented a new Cyber Incident Notification Reporting Rule, effective Sept. 1, 2023, mandating federally insured credit unions swiftly — within 72 hours — notify the NCUA after the credit union reasonably believes that a reportable cyber incident has occurred. 

Credit unions should also notify the NCUA if a third-party provider experiences a cyber incident affecting the credit union.

NCUA said key steps to consider when implementing the reporting rule are found in the NCUA Letter to Credit Unions 23-CU-07, Cyber Incident Notification Requirements, and include:

  • Updating response plans
  • Reviewing third-party contracts
  • Training employees
  • Monitoring and documenting incidents.

Interest Rate Risk (IRR)

In evaluating the “S” CAMELS component, the agency said its examiners will continue to evaluate whether a credit union proactively manages its IRR and the related risks to capital, asset quality, earnings, and liquidity. In particular, NCUA said its examiners will review a 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
  • Back testing and sensitivity testing of the assumption set
  • 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.

Other Updates

In the Letter to Credit Unions, NCUA said additional updates include:

Bank Secrecy Act (BSA) Compliance

“A credit union’s deficiency in or failure to comply with the BSA’s programmatic, recordkeeping, and reporting requirements can pose a significant risk to the institution, its members, and the Share Insurance Fund,” NCUA said, adding it will provide updates to credit unions regarding any regulatory changes to the BSA throughout 2024, as well as updates to supervisory expectations and examination procedures. 

Support for Small Credit Unions and Minority Depository Institutions

In 2024, NCUA said it will remain committed to supporting and preserving small credit unions and minority depository institutions (MDIs) through its Small Credit Union and MDI Support Program (Support Program). Small credit unions and MDIs face unique risks and hurdles, and the NCUA will continue to offer custom support to eligible credit unions. 

“Credit unions with less than $100 million in assets and MDIs of all asset sizes are eligible and can request assistance through their examiner or regional office,” the agency said. “The NCUA recognizes the value small and MDI credit unions bring to members in underserved communities by offering access to safe, fair, and affordable loans and other financial products and services.”

According to NCUA, the benefits of this program are expected to include:

  • Expanded opportunities for qualifying credit unions to receive support through NCUA grants, training, and other initiatives
  • Furthered partnerships with organizations and industry mentors that can support small credit unions and MDIs
  • Added support to credit union management in addressing operational challenges.

The full letter, including links to additional resources, can be found here.

Comments

Post a Comment

Please no profanity or political comments.

Popular posts from this blog

'Tis the season for fraud! Teller questions if member fraud is suspected.

  When a credit union employee suspects a member may be subject to fraud, they should initiate a careful conversation focusing on the nature of the transaction and external influences. The goal is to help the member identify red flags without the employee asking for sensitive personal information that the credit union should already have on file.  Initial Verification Questions    .pdf Before discussing the specifics of the suspicious activity, the employee should confirm the member's identity in accordance with established internal protocols.  Questions About the Transaction/Activity If the member confirms they are conducting a suspicious transaction (e.g., a large wire transfer or purchase of gift cards ), the employee should ask questions to help the member pause and think critically:  "What is the purpose of this transaction?" "Do you personally know the person or business you are sending money to?" "Have you ever met the...
Post a Comment
Read Complete Article HERE>»

Have a Safe and Happy Thanksgiving!

    Thanksgiving, is a day when we pause to give thanks for what we have! www. NCOFCU .org   Have a Safe a...
Post a Comment
Read Complete Article HERE>»

Fed cuts interest rates for the second time this year

The Federal Reserve on Wednesday lowered interest rates for the second time this year in a continued bid to prevent unemployment from surging. Fed officials voted for another quarter-point rate cut, lowering their benchmark lending rate to a range between 3.75% and 4%, the lowest in three years. It is the first time since the Fed’s rate-setting committee was established in the 1930s that officials have set monetary policy while lacking an entire month of crucial government employment data due to a government shutdown. ____________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board
Post a Comment
Read Complete Article HERE>»

Loan Growth Part 3

MADISON, Wis.–Credit union loan balances rose 1.1% in February, faster than the 0.2% reported in February 2021, even as membership growth slowed significantly during the first two months of 2022, according to data released as part of CUNA Mutual’s April Trends Report. The Report, which is based on data through February, showed overall loan growth was 9.6% during the last 12 months. What is actually happening below the surface? According to the Trends Report, consistent with the trend line the analysis shows large credit unions reported significantly faster loan growth in 2021 as compared to smaller credit unions. Credit unions with assets greater than $1 billion reported loan growth of 8.4% compared to credit unions with assets less than $20 million, reporting loan growth of 0.9%. Here's a look at how credit unions performed by category, according to the newest Trends Report” ...
Post a Comment
Read Complete Article HERE>»

Banking During and After COVID-19

Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. Despite increasing consumer expectations and increased competition from non-traditional financial institutions, most banks and credit unions were stronger than at any period since the financial crisis of 2008. In a matter of only a few weeks, the world of banking has experienced a level of disruption that will change everything that had been the norm in financial services. There has not only been a major change in the way financial institutions conduct business but in the way, employees do their work and the way consumers manage their finances. Banks and credit unions must use this time of disruption to consider reinventing themselves from the inside out. It is a time when we need to better understand the way consumers expect their financial institution to support their financial needs. This includes the way banks and credit unions use data, AI, technology and human resources t...
Post a Comment
Read Complete Article HERE>»

Two Members of FOMC Indicate December Rate Cut Not a Sure Thing

  WASHINGTON–Two members of the Fed’s Open Market Committee have indicated they are in no hurry to further cut rates, despite market expectations. “I’m not decided going into the December meeting” and “my threshold for cutting is a little bit higher than it was at the last two meetings,” Federal Reserve Bank of Chicago President Austan Goolsbee said in a Yahoo Finance interview. “I am nervous about the inflation side of the ledger, where you’ve seen inflation above the target for four and a half years, and it’s trending the wrong way.” Goolsbee was interviewed after last week’s Federal Open Market Committee meeting that saw policymakers cut their interest rate target by a quarter percentage point, to between 3.75% and 4%, as officials sought to offset rising risks to the job market while still keeping interest rates in a position where they’ll help lower inflation pressures, noted Yahoo Finance. As the report also noted, Fed Chair Jerome Powell cautioned last week that “a further r...
Post a Comment
Read Complete Article HERE>»

Not Your Mother’s Credit Union

“Stablecoins aren’t a speculative play. They’re the next evolution of payments — and a chance for credit unions to lead, not lag. It starts with connecting members to DLT rails - the digital wallet. Without that, nothing else can happen. It’s just a new payment rail - embrace it or lose the relationship. It’s that simple.” While ‘ stablecoins ’ were the prevailing buzzword across Money20/20 this year, the credit union industry had a significant presence. Small financial institutions have staked a place in the future of payments. Credit unions  received a significant boost this summer with the enactment of the stablecoin bill into law. The Guiding and Establishing National Innovation for U.S. Stablecoins Act authorizes subsidiaries of federally insured credit unions, such as credit union service organizations, to become issuers. Not Your Mother’s Credit Union A Money20/20  fireside chat  with the regulator for credit unions that I moderated focused on the rulemaking task a...
Post a Comment
Read Complete Article HERE>»

CUs Encouraged to Promote Automatic Savings Plans

America Saves Week and Military Saves Week kick off this weekend. The week-long, national campaigns will begin Feb. 19 with events that aim to unite government, nonprofit and corporate groups to encourage individuals and families to save and build personal wealth. This year’s campaign theme – “Set Goals, Make a Plan, Save Automatically” – promotes the need for families to get aggressive with automatic savings.****READ MORE: CUs Encouraged to Promote Automatic Savings Plans :
Post a Comment
Read Complete Article HERE>»

Zelle Says It Will Allow Users to Make International Payments Using Stablecoins

SCOTTSDALE, Ariz .–   Zelle  has announced plans to allow users to start making international payments using stablecoins. The move by Early Warning Services, which operates the P2P payments network Zelle and which is owned by a consortium of large banks, comes in the wake of the passage of the GENIUS Act, which is designed to usher stablecoins into the regulated financial system. Stablecoins are a digital currency that is pegged to a fiat currency such as the U.S. dollar. As the CU Daily reported  here , credit unions were strongly urged during an event last week to not just start paying attention to stablecoins but to begin taking action as interchange income is threatened. Similarly, analysts said the move by Zelle to help users move money across borders is a defensive move in response to what is expected to be the growing use of stablecoins by consumers and businesses. Early Warning Services did not indicate how it would work or when it would launch, according to sever...
Post a Comment
Read Complete Article HERE>»