NCUA Board Member Todd M. Harper Statement on Modern Examination and Risk Identification Tool (MERIT) Update

As Prepared for Delivery on September 17, 2020

Three of the main tenets of my philosophy on regulation are that the NCUA should be innovative, forward looking and risk focused. Just as the world changes, a regulator must itself innovate in response to new marketplace and technological developments.

An important way in which the NCUA is currently innovating is through the implementation of MERIT. To remain forward looking and risk focused, a regulator must also revise the rules, procedures and tools it uses from time to time. MERIT will help this agency to better perform its functions and apply better analytics. It should also lead to fewer onsite examination hours, which will help the agency to be more efficient, another part of my regulatory philosophy.

Our timely implementation of MERIT underscores that the NCUA is forward looking. With the onset of the COVID-19 pandemic, the agency was forced to move its exam processes to a virtual format literally overnight. Once operational, MERIT will ensure better and more seamless offsite exams. Kelly, could you please explain additional ways in which MERIT will enable the NCUA to be more forward looking and risk focused?

Last fall, you and your team began piloting MERIT. Those pilots have helped the agency work through some of the technological kinks that are typical in a project of this magnitude. And, in the months before we complete the wide-scale rollout next year, we will be able to make further adjustments after gathering the material from the extended pilots.

Kelly, I have several questions for you about the pilots. First, what sorts of issues surfaced during the pilots with the ONES credit unions and our partner state regulators? How were those issues resolved?

Some states like Washington, Illinois and Massachusetts conduct separate consumer compliance exams and provide a consumer compliance rating of their regulated credit unions. Is MERIT equipped to document state consumer compliance ratings, and if so, how? If the NCUA were to begin to assign separate consumer compliance ratings the way our sister federal banking agencies do, we could more easily make that change in our supervision program without needing to make major alterations to the MERIT base system.

Last year, when I was on my “Get in the Field” initiative, I heard from some credit unions and state regulators involved in the pilot. Overall and unsurprisingly, the MERIT system and your team received very high marks. There was, however, an issue related to the control over documents. Has this issue been resolved, and if so, how?

Thank you for answering all of my questions and for this very helpful update on MERIT.  Mr. Chairman, I have no further question.