ALEXANDRIA, Va.—Credit unions appear to still be struggling to gain approval for secondary capital plans from NCUA, a new report indicates.
CUToday.info previously reported the issue, and now Keith Leggett, the former senior vice president and senior economist at the ABA, has suggested credit unions have had a “zero batting average” for secondary capital plan appeals to the Supervisory Review Committee (SRC) of NCUA during the first seven months of 2019.
Five credit unions appealed the denial of their secondary capital plans from NCUA’s regional directors. Four of the appeals involved applications to accept secondary capital and one appeal was to increase the amount of secondary capital accepted by the credit union, Leggett reported.
The SRC upheld the denial of the regional directors in all five cases, Leggett said.
Leggett outlined some of what he termed the “highlights” from the SRC decisions:
- In several cases, credit unions stated they met the five requirements of the rule and should be allowed to accept secondary capital. (12 C.F.R. § 701.34) However, the SRC opined that "there is no duty for the Regional Director to approve a secondary capital application simply because the plan meets the five requirements of the rule." The SRC concluded that it is within the authority and discretion of the Regional Director to review the safety and soundness exposure of the credit unions, Leggett reported.
- “The SRC found deficiencies in various credit union's plans, which in some cases were overly simplistic or inadequate. In a couple cases, the credit unions stated the secondary capital was meant to support loan growth without specifying the types of loans the credit union will add to their balance sheets. The SRC believed that subject ambiguity posed a safety and soundness concern,” Leggett said.
- In one case, a regional director sought to reduce the amount of secondary capital that the credit union could accept because of safety and soundness concerns due to interest rate risk associated from concentration in real estate secured assets. The Regional Director wanted to reduce the amount of balance sheet leverage at the credit union. In addition, the credit union should not make unsecured secondary capital loans to other credit unions, according to Leggett. The decision can be found here.
- Another credit union's secondary capital plan posed safety and soundness concerns due to inadequate liquidity risk assessment, incomplete interest rate risk assessment, and no exit or stop-loss strategy.
- In another decision, the SRC concluded "the credit union failed to assess key risks arising from the plan’s reliance on high levels of market sensitive wholesale funding (nonmember deposits and borrowing) and deployment of funds into higher risk assets." The decision can be found here.