Credit Union Exam Solutions Presents With Flying Colors

www.marktreichel.com

https://www.linkedin.com/in/mark-treichel/

In this episode of With Flying Colors, Mark Treichel breaks down NCUA’s latest proposed rule — one that would eliminate the long-standing loan participation regulation that has been in place since 2006. This is part of NCUA’s broader deregulatory push, driven in part by an executive order mandating a ten-to-one ratio of rule eliminations to new rulemaking.

 

Mark walks through what the original 2006 rule established: a 50% of net worth cap for the first 30 months of a loan participation program and a 100% cap after that, with a waiver process for institutions that wanted to exceed those thresholds. The rule applied to both federal credit unions and federally insured state charters.

 

The proposed change would remove those bright line caps entirely and replace them with a principles-based approach — one where the credit union’s board sets its own policies, calibrated to the institution’s size, complexity, and risk profile.

 

Mark then explains why this change is less dramatic than it might sound. NCUA’s concentration risk guidance letter — which already requires board-approved limits, documented risk frameworks, stress testing, servicer performance tracking, and regular board reporting — remains active. General safety and soundness authority also remains, and NCUA examiners still have tools to require reduced exposure, improved policies, or even a pause in lending until programs meet expectations.

 

That said, Mark identifies where the risks are real: smaller credit unions without sophisticated concentration risk frameworks, less experienced examiner staff following NCUA’s recent workforce reductions, and regional variability in how principles-based supervision gets applied.

 

The episode closes with four practical steps for credit unions to take now:

•        Review your board policy — if it references the old 50% or 100% net worth limits, it will need to be updated when the rule is finalized.

•        Run a concentration risk letter checklist against your current policies.

•        Document your rationale for concentration risk limits and build it into strategic planning.

•        Submit a comment letter by May 26th if you have a view on the proposal.

 

Topics covered:

•        What the 2006 loan participation rule established and why it was created

•        What NCUA is now proposing and why

•        Why the concentration risk guidance letter is the more important tool

•        How NCUA’s safety and soundness authority works as a backstop

•        The sophistication gap facing smaller credit unions

•        NCUA staffing reductions and their impact on exam consistency

•        What credit unions should do before the rule is finalized