REGular Blog: NCUA's 2024 Supervisory Priorities - Part 2

Earlier this week we posted about the NCUA's newly-released 2024 Supervisory Priorities, with a focus on what changed from 2023 to 2024. Today we are focusing on the 2024 priorities and what they might have in store for credit unions.

Credit Risk

It’s no surprise that credit risk remains a priority for 2024! Economic conditions have made it tough for some members to repay their debts. The NCUA will be focusing on:

• Lending program soundness and risk management practices, including changes to underwriting standards, portfolio monitoring practices, modification and workout strategies and collection programs.
• Policies and procedures related to the Allowance for Credit Losses (ACL), documentation of reserve methodology, adequacy of reserves, and adherence to generally accepted accounting principles.

Liquidity Risk

With uncertainty in interest rates and economic conditions, credit unions will need to maintain strong liquidity risk management in 2024. The NCUA will look for:

• Adequacy of liquidity risk management framework (relative to size, complexity, and risk profile) including current and prospective sources of liquidity compared to funding needs.
• Policies, procedures, and risk limits.
• Evaluation of:
• 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 and for changes in cash flow projections for an appropriate range of relevant factors (prepayment speeds for example).
• Cost of various funding alternatives and impact on earnings and capital.
• Diversity of funding sources under normal and stressed conditions.
• Appropriateness of contingency funding plans to address plausible unexpected liquidity shortfalls.

Consumer Financial Protection

The NCUA will consider trends in violations identified during examinations and from member complaints, emerging issues, and any recent changes to regulatory requirements. They will also focus on:

• Overdraft programs – any changes to the credit union’s program to address consumer compliance risk and potential consumer harm, website advertising, balance calculation methods, and settlement process.
• Fair Lending – policies and practices for redlining, marketing, and pricing discrimination risk factors.
• Auto lending - review of indirect auto loans including disclosures, policies, and practices to assess Regulation Z compliance and policies and practices related to Guaranteed Asset Protection insurance.
• Flood insurance – policies and procedures to ensure compliance.

Information Security (Cybersecurity)

The credit union should have a robust information security program to safeguard both members and the credit union, as well as updated policies and procedures for the new requirement to report a cyber incident to the NCUA. The NCUA will be looking for:

• Updated response plans.
• Process for reviewing third-party contracts.
• Plan for training employees.
• Procedures for monitoring and documenting incidents.

Interest Rate Risk (IRR)

Higher interest rates continue to amplify market risk. The NCUA will be looking at how the credit union proactively manages its IRR and related risks to capital, asset quality, earnings, and liquidity, including:

• Key assumptions and related data sets – are they reasonable and well documented?
• Backtesting and sensitivity testing of assumption set.
• Overall level of IRR exposure – is it properly measured and controlled?
• Communication of results to decision-makers and the Board of Directors.
• Proactive action to remain within safe and sound policy limits.

Don’t forget about the Bank Secrecy Act! This is still listed as an area of supervisory interest for the NCUA along with support for small credit unions and minority depository institutions.