At the NCUA’s September single board member meeting the acting CFO announced the agency had conducted four liquidations through the first two quarters. The YTD loss allowance was increased by $17.6 million versus $2.0 million in 2024. $12 million was expensed as an insurance loss for June without any details (Unilever FCU?).
NCUSIF trends are not going in the right direction.
The most important efforts limiting NCUSIF losses are NCUA’s annual examination program.
The problem is that it is no longer annual except for selected cases. After the Agency’s April layoffs of 20% of staff, the exam cycle was extended further for apparently stable credit unions.
But it is not just the frequency of contact, but the quality of the work and the interaction with management and board on important issues.
Against this recent NCUSIF update, yesterday’s NCUA press release was especially unsettling. On the surface, the single board member Kyle Hauptman announced NCUA’s goal to conform agency policy with the political ideology of the current administration.
The Headline read: NCUA Eliminates Use of Reputational Risk, (link). But the change was much more extensive as described by Ancin Cooley in a post in which he focuses on this paragraph:
In addition to eliminating reputation risk, NCUA has discontinued the practice of assigning ratings to the Risk Categories (also referred to as Risk Areas) for the examination and supervision program. Historically, examiners assessed the amount and direction of risk exposure in seven Risk Categories: Credit, Interest Rate, Liquidity, Transaction, Compliance, Reputation, and Strategic.
This brief excerpt does not specify what this change means. Will the 1-5 CAMELS ratings be affected? Will the “high, moderate, or low” summary comment on risk areas be ended?
With credit union failures and NCUSIF losses trending higher, reduced examination efforts, and continuing economic uncertainty, is now the time to muzzle examiner judgements? Here is Cooley’s reaction:
We live in odd times.
hashtag#CEOs, I know you’ve had frustrating encounters with auditors and regulators. They can feel burdensome, even annoying. But this latest move from National Credit Union Administration (NCUA) isn’t a win for the reduction of “regulatory burden”—it’s something far more concerning.
Although the headlines highlight the elimination of reputation risk, please read further. In addition to eliminating reputation risk as a rating, NCUA has discontinued assigning ratings to all seven risk categories:
• Credit
• Interest Rate
• Liquidity
• Transaction
• Compliance
• Reputation
• Strategic
Imagine someone removing all the smoke detectors from your building and telling you, “Don’t worry, we’ll let you know when we see fire.”
The purpose of these risk ratings was never busywork. At the aggregate level, they provided field offices, regions, and national leadership with a top-down view of where risk was accumulating. From a staffing standpoint, if a credit union’s liquidity risk was rated high, it signaled the need for additional expertise at the next examination.
Examiners and ERM professionals assess each category based on quantity, direction, and the quality of risk management. The point was never to penalize higher-risk profiles. It was to ensure that if you accepted a higher risk, your management practices were robust enough to handle it.
America’s Credit Unions, NASCUS, and American Association of Credit Union Leagues
How is this a win for the members and the safety and soundness of credit unions? Why do we only hear about tax status, and none of these moves requested are discussed with the same intensity?
A couple of foot notes: NCUA Credit Risk Webinar
On July 15, 2025, in an NCUA (https://lnkd.in/ednAJjCE) credit risk webinar, an examiner (Min 13:49) discussed the benefits of key concepts like risk appetite, risk tolerance, and risk capacity. Those are excellent tools for boards and executives. They’re the backbone of modern ERM.
But here’s the contradiction: NCUA is now saying those concepts are helpful for credit unions to adopt, while simultaneously discontinuing examiner use of risk ratings for the seven categories (credit, liquidity, interest rate, compliance, transaction, reputation, and strategic).
National Credit Union Administration:
Additional Actions Needed to Strengthen Oversight
On Sept. 23, 2021, the Government Accountability Office issued a report stating NCUA has opportunities to improve its use of supervisory information to address deteriorating credit unions. By more fully leveraging the additional predictive value of the CAMEL component ratings, NCUA could take earlier, targeted supervisory action to help address credit union risks and mitigate losses to the NCUSIF. As of today, one of the recommendations is still open, and another is partially addressed.
END
As Hauptman tries to burnish his reputation with the administration’s anti-government ideology, the dangers of a single political point of view determining regulatory priorities in a so-called independent agency becomes clear.
This press release is not about ensuring the safety and soundness of members’ funds or enhancing the cooperative systems critical roles. It is simply posturing for another assignment in an administration bent on governmental disruption.
The financial and institutional integrity of the cooperative system requires a competent, active regulatory oversight. Institutions that manage financial assets for others are especially vulnerable to self-dealing. That is why almost every form of money lending, transfer, safe-keeping and advice is subject to governmental licensing and oversight.
Without effective supervision not only will credit unions continue to be lost, the playing field will become crowded with internal and external predators trying to cash in on the abdication of, and disrespect for, regulatory oversight.