CAMEL CODE 4 - What You NEED to Know

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# With Flying Colors Podcast: CAMEL Code 4 - What You Need to Know
 Episode Summary
Mark Treichel discusses CAMEL Code 4 ratings for credit unions with guests Steve Farrar and Todd Miller, both former NCUA employees. They explore what a Code 4 rating means, its implications, and what credit unions should expect.

## Key Points

1. CAMEL Code 4 Definition:
   - Indicates unsafe and unsound practices or conditions
   - Risk management practices considered unacceptable for credit union size/complexity
   - NCUA may have concerns about management's ability to correct problems

2. Implications of a Code 4 Rating:
   - Administrative action (usually unpublished Letter of Understanding and Agreement)
   - Examinations every 120 days (6-12 weeks of examiner presence annually)
   - Potential loss of Federal Reserve daylight overdrafts
   - Possible assignment to NCUA's Division of Special Actions
   - Federal Home Loan Bank may eventually be notified, potentially affecting borrowing terms

3. Board and Management Responsibilities:
   - Increased expectation for board to hold management accountable
   - More frequent progress reporting to the board
   - Need to authorize resources for problem resolution

4. Financial Implications:
   - May affect NCUSIF equity ratio, especially for larger credit unions
   - Potential collateral requirements from lenders
   - Possible issues with mortgage sales on secondary market

5. Regulatory Oversight:
   - NCUA approval required for changes in senior management and board members
   - More detailed Document of Resolution (DOR) requirements

6. Comparison to CAMEL Code 5:
   - Code 5 indicates imminent failure risk
   - Limited options, often leading to regulator-driven mergers or conservatorship

## Guest Backgrounds

- Steve Farrar: 30-year NCUA career, split between field work and central office roles
- Todd Miller: 34-year NCUA career, including roles as examiner, capital market specialist, and director of special actions

## Additional Notes
- Discussion of historical tools like PUED (Prior Undivided Earnings Deficit) no longer available to NCUA
- Emphasis on the challenging but potentially rewarding nature of working with troubled credit unions