# So You're a CAMEL 3 - Now What? Understanding NCUA's Increased Supervision
In the latest episode of "With Flying Colors," host Mark Treichel sits down with former NCUA examiners Steve Farr and Todd Miller to discuss a critical topic for credit unions: CAMEL 3 ratings. This insightful conversation sheds light on what credit unions can expect when they receive this rating and how to navigate the increased regulatory scrutiny that follows.
## Recent Trends in CAMEL 3 Ratings
The podcast kicks off with a discussion of recent trends in CAMEL ratings. According to the latest NCUA data:
- The number of CAMEL 3 credit unions slightly decreased from 776 at the end of 2023 to 760 in Q1 2024.
- However, the total assets of CAMEL 3 credit unions increased from $160 billion to $177 billion.
This trend suggests that larger credit unions are increasingly moving into the CAMEL 3 category, a development that warrants attention from industry professionals.
## What Does CAMEL 3 Mean for NCUA?
A CAMEL 3 rating signals to NCUA that a credit union exhibits "some degree of supervisory concern in one or more components." The agency's primary focus is on assessing whether the credit union's risk management practices are satisfactory relative to its size and complexity.
## Changes in NCUA Supervision
When a credit union receives a CAMEL 3 rating, it can expect significant changes in NCUA's supervision approach:
1. **Increased Examination Frequency**: NCUA will conduct follow-up exams every six months, doubling the typical annual examination schedule.
2. **Documents of Resolution (DOR)**: The credit union will receive a DOR with specific deadlines, often aligned with the next examination date.
3. **Regional Director Letters**: In most cases, the Regional Director will send a letter emphasizing the supervisory concerns and expectations for improvement.
4. **Monthly Reporting**: Credit unions over $250 million in assets are required to submit monthly reports to their examiner, including financial statements, board minutes, and board packages.
## Timeframe for Upgrades
One of the most crucial insights from the podcast is the realistic timeframe for upgrading from a CAMEL 3 rating. While NCUA's goal is to resolve CAMEL 3 and 4 ratings within 24 months, the actual process often takes longer:
- Initial downgrade to CAMEL 3
- Follow-up exam after 6 months
- Report issuance (potentially 2 months later)
- If not upgraded, another 6-month wait for the next exam
This cycle means that credit unions should be prepared for at least 14-20 months of increased supervision before a potential upgrade.
## Advice for Credit Unions
The podcast experts offer valuable advice for credit unions navigating a CAMEL 3 rating:
1. **Focus on Core Issues**: Address the primary concerns identified in the Documents of Resolution promptly and thoroughly.
2. **Implement Tracking Systems**: Boards should establish systems to track progress on resolving identified issues.
3. **Regular Reporting**: Management should provide frequent updates to the board on efforts to address NCUA's concerns.
4. **Prepare for Extended Oversight**: Understand that the path to an upgrade may be longer than initially expected, and plan accordingly.
## Conclusion
Receiving a CAMEL 3 rating is a significant event for any credit union, but it doesn't have to be a long-term setback. By understanding NCUA's approach, focusing on addressing core issues, and maintaining open communication with both the regulator and the board, credit unions can navigate this period of increased scrutiny and work towards an upgrade.
For more insights on regulatory compliance and credit union management, be sure to subscribe to the "With Flying Colors" podcast, available on all major podcast platforms.
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