Ending the Safety and Soundness Nightmare

By Ryal Tayloe06.30.2014

The scene is all too familiar. A certified letter arrives; inside is a seemingly innocuous letter – an exam has been scheduled. C-level executives spring into action. Reports are run, files are pulled and documentation is scanned. An employee has the full-time job of coordinating departments gathering data, compiling it all into a coherent package. Six weeks later, regulators arrive.

The financial downturn permanently altered our regulatory landscape. Greater regulator expectations, lengthier safety and soundness examinations, and increased legislation are reality. A CUNA survey revealed CEOs’ exam satisfaction decreased to 58 percent in 2013. Four of five respondents said weightier regulatory and examination requirements have put more pressure on resources. The report also confirmed exams took longer in 2013 (9.1 days).

Credit unions should embrace the change, but not accept defeat. The power to alter the examination process is in your hands—real-time reporting, standardized process management and digital filing provide a technical framework to accommodate compliance across all five exam assessments: capital, asset quality, management, earnings and liquidity.


Capital is a critical safety net to protect from losses. With technology, credit unions can create custom dashboards for each user that revolutionize decision making for management and examiners. Consider concentration management: a chief credit officer can review the loan portfolio in real time, assessing concentrations across any loan product relative to its capital level and then evaluate large borrower and industry concentrations or risk of a supply chain vertical. Loan committees can make informed portfolio decisions when evaluating potential new business. Regulators can quickly assess potential concentrations of risk and determine if capital is sufficient relative to that risk. Having reports available anytime makes the arduous task of the pre-exam package a non-issue.

Asset Quality

Examiners evaluate all assets, primarily focusing on loans and portfolio credit quality. A similar dashboard-like system gives portfolio managers and lenders insight to exception and past-due reports, and arm management with summary reports of high-level metrics with the ability to drill down into each market, office or loan. Digital credit filing eases the loan review and exam process too. Digitized files stored on a SOC-certified data system eliminate redundant files, free up physical space and apply consistent file organization across the credit union. Proactively using these capabilities, shared transparently with regulators, build rapport and trust and lessen exam time.


Managers must understand the loan portfolio and balance sheet to have a healthy risk profile, compliance consistency and earnings growth. Automating and standardizing processes lowers back office headcounts and improves accuracy, resulting in a better efficiency ratio that translates directly to operating profits. Implementing an integrated funding pipeline improves management’s funding decisions and lowers expenditures to better net interest margins and yield a materially improved return on assets. Data interaction is also simplified for the actual exam. With appropriate data security and permissions, the examination team can gain access to required reports and files instantly, and complete the review without disrupting employees, reducing office stress and increasing productivity. Employees stay focused on what matters.


Earnings are critical in the exam framework; they fund capital and growth. Reporting, process and digital file software enable management to increase efficiency, lower overhead and better manage interest rate spreads. Indirectly, it protects earnings from the risk of non-compliance penalties. The impact on earnings for failing to properly manage compliance risk can be severe, representing a clear portion of the credit union’s full year net income and decreasing ROA and ROE. Software to standardize the loan application, underwriting and approval process greatly reduces the likelihood of incurring these fines. Credit unions can proactively analyze lending data and routinely test the data to ensure full compliance.


Appropriate liquidity management is not preventing regulators from knocking on the door; it is funding loans, meeting payroll and managing interest rate spreads. The first benefit for a CFO is using the pipeline reports previously described. Rather than looking at loan funding needs days in advance, planning can be extended to weeks with greater confidence to the day. Technology to forecast deposit growth trends, funds from sold mortgages or other loans, cash received from normal loan repayment and other sources provides unprecedented forecasting precision, meaning better spread management and more informed capital allocation. Digitally storing accounting records and other finance processes helps document checks and balances, creating a permanent digital record of the internal control process. Examiners, auditors and internal risk management can simply access the digitized system to review processes, documentation and calculations.

Over time, credit unions will view examiners less as an intrusion while examiners will respect your risk management systems and culture. Technology can change the exam experience for all involved. In the future, regulators could have access to required data from any location using cloud-based systems. Pre-built pre-exam reports would be available through a dashboard, displaying real-time or historical data—meaning no wasted manpower and improved efficiency. In a rapidly changing industry, seeking out technologies to better manage the exam process enables your credit union’s exam to become a non-event.


Ryal Tayloe is regional vice president for Wilmington, N.C.-based nCino (www.ncino.com). nCino provides small- to mid-sized financial institutions with superior transparency and clarity into their existing loan production pipelines, portfolios, and operating efficiencies across all business lines.

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