The OCC's Risk Report and What It Reveals for Credit Union Exams
Credit Union Exam Solutions Presents With Flying Colors
Navigating Compliance and Economic Challenges in Credit Unions
This chapter explores the operational challenges smaller credit unions face with compliance regulations and the impact of economic slowdowns on loan and deposit growth. The discussion emphasizes the role of AI technology in financial services and the importance of careful model validation to balance risk and innovation.
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Credit Union Roundtable: Mid-Year Risk Reports - Our Take on What it Means for CUs
Episode Description
In this inaugural Credit Union Roundtable episode, host Mark Treichel is joined by three industry veterans to break down the OCC's Spring 2025 risk report and what it means for credit unions. Steve Farrar, Todd Miller, and Dennis Bauer bring decades of combined NCUA and credit union experience to analyze the top risk concerns facing the industry.
Featured Guests
Steve Farrar - Former NCUA examiner and problem case officer with 30+ years of regulatory experience, including work on the risk-based capital rule and Central Liquidity Facility
Todd Miller - 34-year NCUA veteran, former Director of Special Actions in the Western Region, capital markets specialist
Dennis Bauer - Recently retired CFO of Ideal Credit Union (grew from $100M to $1B+ during his tenure), former NCUA examiner
Key Topics Covered
Commercial Credit Risk (9:00)
- Rising delinquencies in commercial real estate
- Impact of interest rate resets on variable rate loans
- Office building vacancy concerns post-COVID
- NCUA's increased focus on annual review processes
- New concentration limit requirements by property type
Retail Credit Performance (18:00)
- Student loan payment resumption impacts
- Generational differences in borrowing behavior
- Auto loan portfolio shrinkage trends
- Regional economic performance variations
Interest Rate Environment (24:00)
- Yield curve normalization effects
- CD composition changes (13% to 28% of deposits)
- Underwater investment portfolios
- Enhanced stress testing requirements from examiners
Operational Risk Challenges (33:00)
- Cybersecurity incident response planning
- Legacy system conversion risks
- Communication strategies during cyber incidents
- Cost vs. benefit analysis for security upgrades
Fraud & Payment Systems (39:00)
- Elder fraud targeting (timeshare scams example)
- ATM jackpotting and skimming schemes
- Venmo usage statistics (85% under 40, $342B in Q1 transfers)
- Third-party payment system competition
BSA/AML Compliance Burden (45:00)
- Staffing challenges for smaller credit unions
- Creating collaborative BSA offices
- Committee-based approach to compliance
Growth & Competition (46:00)
- Slow loan growth trends
- Credit unions gaining deposit market share vs. banks
- Money supply impacts on deposit availability
- Pricing strategy considerations
AI & Technology Adoption (50:00)
- Model validation requirements
- Third-party vendor risk management
- NCUA's AI policy challenges
- Competitive advantages vs. compliance risks
Key Takeaways
- Commercial Real Estate Monitoring: Credit unions should closely watch their CRE portfolios, especially office properties and loans approaching rate resets
- Stress Testing Expansion: Expect more detailed scenario analysis requests from NCUA examiners across interest rate and liquidity risks
- Operational Risk Investment: Cybersecurity and system conversion planning require significant ongoing investment and expertise
- Generational Shifts: Adapting to younger members' payment preferences and borrowing behaviors is critical for long-term growth
- AI Adoption Strategy: Credit unions need to embrace AI while implementing proper model validation and risk management frameworks
Resources Mentioned
- OCC Spring 2025 Risk Report (link in show notes)
- Credit Union Regulatory Guidance podcast (AI-powered audio summaries)
- Attorney General scam awareness resources
Notable Quotes
"A rolling loan gathers no loss" - Professor Willie Stotts reference on commercial loan repricing challenges
"We took the approach that we're gonna have a cyber incident... so we took that approach in developing our incident response plan" - Dennis Bauer on cybersecurity preparation
"If you don't have time to do it right, you don't have time to do it over" - On system conversion planning
Contact Information
Mark Treichel - Host, With Flying Colors Podcast Consulting Services: Available for credit union risk management and regulatory guidance
Next Episode Preview
Stay tuned for more Credit Union Roundtable discussions featuring industry veterans sharing practical insights on regulatory trends and risk management strategies.
This episode provides general information and should not be considered specific regulatory or legal advice. Credit unions should consult with their own advisors and regulatory contacts for guidance on specific situations.
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