Credit risk takes center stage in NCUA’s 2025 exam priorities letter
As someone who spent more than three decades at the NCUA, including serving as Executive Director, my perspective allows me to decode the “NCUA speak” in the agency’s annual supervisory priorities. The recently released 2025 letter is a mix of welcome focus and what I can only describe as “regulatory theater.”
Welcome Focus
In recent years, I have criticized NCUA’s priority letters for their lack of focus: When everything is a priority, nothing is a priority. For instance, the 2022 letter identified 11 priorities, which diluted the agency’s focus and placed an excessive burden on credit unions.
This year, however, NCUA deserves credit for its more streamlined approach, narrowing its focus to four key areas: Credit Risk, Balance Sheet Management and Risk to Earnings and Net Worth, Cybersecurity, and Consumer Financial Protection. While the balance sheet management priority is broad and encompasses several important areas, this new approach reflects a welcome shift toward greater clarity and prioritization.
Timing is Everything
The early release of this year’s letter is notable. The Chairman of NCUA serves as the agency spokesperson as outlined in the Federal Credit Union Act and signs all such Letters to Credit Unions. Chairman Todd Harper’s decision to expedite its publication suggests a desire to solidify priorities before anticipated leadership changes. Kyle Hauptman will take over as Chair with a stroke of President Trump’s pen, the regulatory tone will shift. This letter was one of Chair Harper’s last opportunities to double down on his and the administration’s fee income concerns.
Editor’s note: President Donald Trump on Dec. 20 named Hauptman as chairman of the NCUA board.
Credit Risk: A Clear and Present Concern
Credit risk is the dominant theme, comprising nearly 25% of the letter’s content — a significant increase over prior years. This isn’t surprising given the deteriorating metrics in credit card and used vehicle loan portfolios in credit union balance sheets. Credit card delinquency rates have exceeded their peaks from the 2008 financial crisis, and used vehicle loan delinquencies have reached record highs. Meanwhile, concentration risk is rising as credit unions expand loan portfolios to offset shrinking net interest margins. Expect these trends will be watched closely at your credit union by your NCUA examiner.
Examination Cycles: A Nod to Efficiency or Regulatory Theater?
Perhaps the most headline-grabbing change is the adjustment to examination cycles for large, well-rated credit unions. Credit unions rated CAMELS 1 or 2 with stable leadership are now eligible for a 12- to 16-month cycle. On the surface, this sounds like a material change for low-risk credit unions with strong management. However, this change also serves to mask operational realities.
NCUA’s own data from 2023 showed that only 80% of CAMELS 4 examinations were completed on schedule, with just 67% of CAMELS 3 exams conducted on time.
Extending the examination timeline for lower-risk credit unions appears less like a strategic shift and more like an attempt to align policy with what is already happening. This move suggests the airline industry’s infamous “solution” to on-time performance issues: padding schedules to create the illusion of punctuality. My credit union conversations do reveal a slight improvement in timely exam delivery and that coupled with this change will allow NCUA to comply with its own policies.
Continued Priorities in Consumer Protection and Cybersecurity
The letter also highlights evolving consumer protection priorities, including overdraft programs and fair lending. These reflect broader political agendas and may shift under new leadership. Meanwhile, cybersecurity remains a fixed priority, as recent high-profile breaches demonstrate the escalating sophistication of threats. Credit unions must remain vigilant, regardless of shifting regulatory emphases, because the consequences of cyber incidents can be devastating.
What is Noticeably Missing?
Interestingly, corporate governance is conspicuously absent from this year’s letter. Recent trends indicate NCUA exam staff frequently link most exam issues with failed or weak Corporate Governance. NCUA’s corporate governance guidance to credit unions is minimal, which creates inconsistency in exam approaches in this important area.
NCUA should either issue standardized guidance on Corporate Governance expectations, or examiners should refrain from citing governance deficiencies as a default explanation for most operational and compliance matters. Without clear, consistent, and documented standards, using corporate governance as a catch-all criticism undermines both the examination process and the cooperative relationship between examiners and credit unions.
Here’s the Thing: Expect More Mergers
The trends highlighted in the 2025 priorities letter — deteriorating loan quality, NCUA’s focus on fee income, along with the new succession planning regulation — paint a challenging picture for mid-sized and smaller credit unions. The cumulative effect of these regulatory demands increase the already mounting pressures on smaller credit unions, making independent operations increasingly unsustainable. You can debate if these are unintended consequences or economic realities – but mergers will go up.
In 33 years at the NCUA, Mark Treichel led the agency as Executive Director, Regional Director, Director of Special Actions, Supervisory Examiner and Principal Examiner.
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