Examiners reviewing a FISCU’s commercial and member business loan program in a state with its own MBL rule must, at a minimum, determine that the credit union is operating safely, understands the risks in its commercial loan portfolio, and complies with the aggregate MBL loan limit set forth in § 107A of the FCU Act.
NCUA examiners do not have the authority to enforce a state regulation on business lending. Rather, the focus of a review should be to assess if the aggregate business loan exposures or risk management practices represent an undue risk to the Share Insurance Fund.
Because state regulations of business lending must at least cover all the provisions of NCUA regulation part 723, Member Business Loans; Commercial Lending (and be no less restrictive), examiners should verify that core elements of a sound business loan program are in place and that the credit union is adhering to relevant laws and regulations and its own policies and procedures. The failure of a credit union to maintain adherence to law, regulation, policy and/or sound practice may indicate that conditions for undue risk to the share insurance fund are present.
Examiners reviewing a state business lending program should verify that a FISCU has, at a minimum, the following elements in place:
- Adequate commercial loan policies
- Clearly defined board and management responsibilities
- Adequate experience to govern, supervise and conduct business lending
- Proper understanding of the risks in the portfolio
- Effective systems and processes to conduct commercial lending activities ongoing
- Sufficiently detailed reporting of risk and compliance measures, and
- Specific compliance with the statutory aggregate MBL limit
When compliance and risk management deficiencies are found to be material, examiners should base their level of concern on the amount of exposure (for example, the aggregate amount of commercial loans relative to the credit union’s net worth) and complexity of the risk. Examiners should work with the SSA to clearly specify the basis of any concerns and be able to support a case that the concerns constitute an undue risk to the Share Insurance Fund.
Last updated November 25, 2016
