NEWS: The NCUA outlined its 2024 supervisory priorities and examination focus areas in its Letter to Credit Unions 24-CU-01. The NCUA will continue to conduct onsite and offsite examination and supervision activities. The NCUA’s exam flexibility initiative will continue in 2024 providing for an extended exam cycle for certain credit unions. The NCUA will also continue its Small Credit Union Exam Program in most federal credit unions with assets of $50 million or less. For all other credit unions, NCUA examiners will use its risk-focused examination procedures.
The NCUA’s primary areas of supervisory focus in 2024 are:
Credit Risk
NCUA examiners will review existing lending programs’ soundness and 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. Examiners will carefully consider all factors in evaluating a credit union’s efforts to provide relief for borrowers, including whether the efforts were reasonable and conducted with proper controls and management oversight. Also, examiners will review 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
Examiners 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
In 2024, examiners will focus on areas related to:
- Overdraft programs.
- Fair lending.
- Auto lending, including review of indirect auto loans.
Information Security (Cybersecurity)
Recognizing the importance of cybersecurity, the NCUA continues to prioritize this area as a key examination focus. 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.
Interest Rate Risk (IRR)
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.
Bank Secrecy Act (BSA) Compliance
Credit unions play an important role in safeguarding our financial system and must remain vigilant in maintaining and updating their BSA policies, procedures, programs, and controls.
The NCUA 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 (MDIs)
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.