​​Instant Replay Timeout: Official Review of the Regulatory Process

Years ago, while working as a television sports reporter on the West Coast, I interviewed a long-time Pac-10 football referee about his career, game remembrances and skill set that helped propel him to be among college football's elite officials.

I concluded the interview by asking him what he considered to be the litmus test for a successful referee. Without hesitation, he replied, "When the players and fans leave the stadium, they remember the great plays, but not my name."

Those few words, in their simple elegance, transcend far beyond the playing field to so many aspects of our lives. Since becoming NCUA Board Chairman last month, I have reflected on how those words can guide my decisions during my tenure in this office.

The focus should be on creating a work environment that motivates and inspires NCUA employees to give their best, developing regulations and policies that are equitable, meaningful and fair, and promoting public confidence in the ability of the credit union system to be a safe and sound provider of critical financial services. NCUA chairmen come and go. Those principles must live on.

Accordingly, my focus is to enhance the efficiency and effectiveness of NCUA, to empower employees to think creatively without fear of micromanagement and to provide the regulated community a clear and unobstructed window into the thinking and direction of the agency. This philosophy is embodied in the following actions I have already initiated:

Looking at Exam Frequency and Procedures Through an Objective Lens

First, I have formed the Exam Flexibility Initiative under the capable leadership of Region IV Director Keith Morton to carefully and thoroughly evaluate our current exam policies, procedures and frequency. The Exam Flexibility Initiative includes subject matter experts from our central office, as well as regional examiners. It will consult with external stakeholders, including credit unions, to obtain public input and feedback.

I am challenging this group to answer key questions, such as:

  • Without compromising our safety and soundness mission, how can NCUA efficiently and effectively reduce our footprint and time spent on-site at credit unions?
  • Without compromising safety and soundness, what credit union performance standards (such as CAMEL ratings, financial strength ratios, management tenure, and presence or absence of internal controls) would justify an extended or more flexible exam cycle?

One issue I have looked closely at is NCUA's current requirement to examine all our insured federal charters and all federally insured state charters with assets over $250 million once every calendar year. This calendar-year requirement is overlain on top of our separate requirement, established by Chairman Michael Fryzel during the corporate crisis in 2008, to examine credit unions every 10–14 months—the so-called 12-month cycle.

Some correctly note that the calendar-year requirement creates some distortions and disparities in exam cycle frequency. For example, under the calendar-year requirement, a credit union examined in January 2015, is technically not required to be re-examined until December 2016—a full 23 months between exams. Or consider the reverse situation: a credit union examined in December 2015 must be examined before December 2016—meaning that credit union may get a subsequent exam in as little as eight months, regardless of its financial health or risk to the Share Insurance Fund.

To me, future exam frequency should be scheduled based on the financial condition and risk profile of the credit union, without a calendar-year requirement additionally driving the process. In my view, for state-chartered credit unions that NCUA insures, we should also coordinate with our partner state regulators to schedule exams jointly wherever possible, rather than conduct separate ones, which the existing calendar-year requirement sometimes induces.

Having looked carefully at the data, I now favor removing this calendar-year requirement. Changing this policy will increase our efficiency and unclog needless end-of-year exam log-jams for both examiners and credit unions. This Boardset requirement was certainly appropriate during the financial crisis and in its aftermath, but in today's environment, it's no longer necessary.

Modernizing Call Report Data Collection and Minimizing Reporting Burdens

Second, last month I wrote NCUA needs to utilize new technological and analytical tools to enhance our off-site monitoring capabilities. Enabling examiners to spend more time reviewing credit union data off-site with enhanced analytical tools can reduce the exam time needed on-site. That means less disruption at examined credit unions and less examiner travel time away from home. Everyone wins.

To get there, the first step is modernizing our Call Report and Credit Union Profile system. In June, I plan for the NCUA Board to put the Call Report and Profile data-collection process out for public comment, as part of an open and transparent process to get stakeholder input into the data we collect. To do our job properly, NCUA needs to regularly capture credit union material-risk exposures through our Call Reports. At the same time, we need to identify areas where we can reduce or eliminate, unnecessary reporting burdens, especially for smaller and non-complex credit unions.

We need to ask if NCUA can restructure the Call Report interface, so that users only input data that applies to their activities. If a credit union does not engage in member business lending or derivatives, it could be spared from even seeing the data-entry schedules for these activities each quarter. They would simply check a box saying "none" and move on.

To get 360-degree feedback, we won't just put this request to modernize our Call Report and Profile system out for comment, NCUA will also use stakeholder input provided to the Exam Flexibility Initiative to inform the agency's decisionmaking in this area. We will also seek other forums to discuss this important issue with public stakeholders. I certainly look forward to hearing the thoughts of all interested parties about how to make these data collection systems even better and more efficient.

Installing a Picture Window into Evolving Credit Union Issues

Third, I want to make the agency's thought process more visible. NCUA Board meetings have traditionally been oriented toward action items, like the introduction of proposed rules and the final adoption of others. Nevertheless, behind the scenes, the agency always is engaged in discussions of evolving issues. Those discussions sometimes lead to new rule proposals or guidance letters; others are ultimately shelved or rejected as unnecessary or premature.

I believe credit unions would gain a better understanding of our regulatory process if they can view the architecturaldesign process before the foundation and framing of any rule even begins.

That is why I am initiating a process whereby the Board will, from time to time, utilize meetings that are light on action items to conduct briefings on potential rules while they are still in the gestation stage. This will provide stakeholders a window into issues on the horizon that may require future action and enable them to engage with the agency early on about regulatory alternatives.

Consider these three actions the first installments of my on-going continual quality improvement initiative. After all, regulators—like referees—not only need to know when to throw the flag, they also need to know when to let participants exercise their entire playbook. We have only just begun.


—Rick Metsger


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