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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- Administrative action (usually unpublished Letter of Understanding and Agreement)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
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