WASHINGTON–CUNA has made several recommendations related to NCUA and Prompt Corrective Action.
In a letter to the agency, CUNA addressed the two temporary changes the agency made to its PCA regulations in an attempt to assist CUs in remaining operational and liquid during the COVID–19 pandemic. The first change amends the PCA regulations to temporarily enable the board to issue an order applicable to all credit unions to waive the earnings-retention requirement for any credit union that is classified as “adequately capitalized.” The second change modifies these regulations with respect to the specific documentation required for net worth restoration plans for credit unions that become “undercapitalized.”
Both are set to expire on March 31, 2022.
CUNA told the agency it strongly supports the two changes, but it also reiterated its earlier call regarding the 2020 IFR that the NCUA refrain from prematurely setting a specific end date for these temporary relief measures.
Recommendations Made
“We recommend instead that the NCUA extend these temporary PCA measures until the later of: (1) the end of the COVID-19 pandemic as determined by the U.S. Centers for Disease Control and Prevention or other federal entity authorized to make such a determination; or (2) March 31, 2022 as provided in the IFR,” CUNA wrote. “This would help ensure these important and prudent PCA relief measures are available throughout the pandemic and the resulting economic turbulence and volatility, and do not expire at an arbitrary date that may require an additional IFR to extend such relief.”
In addition, CUNA also repeated its request NCUA provide additional PCA relief by temporarily excluding certain assets from the net worth ratio.
“Credit unions are increasingly investing funds—which have significantly increased due to an influx of consumer deposits—in zero- and low-risk assets, such as shorter-term Treasury securities,” CUNA said. “These deposits and resulting investments, however, have caused a decrease in the net worth ratio for many credit unions. Therefore, we ask the NCUA to follow the lead of other federal banking regulators and exclude such investments, as well as 10% of deposits held at the Federal Reserve, from the net worth ratio calculation.”
Rethinking Total Assets
CUNA said NCUA has broad authority in defining “total assets,” which comprises the denominator of the net worth ratio, including amending the definition of “total assets” to exclude certain zero- and low-risk assets.
“Since we continue to find ourselves in a unique and unprecedented situation given the ongoing pandemic, it is imperative that the agency provide additional flexibility regarding credit union capital,” CUNA stated. “Thus, we ask the NCUA to explore ways to reduce the denominator of the net worth ratio—including by excluding certain assets from the calculation—given that savings growth is a result of the current environment as opposed to something credit unions are actively encouraging. Credit unions are not in the business of turning away members or their deposits, but this is a possible though unfortunate alternative that could stem declining net worth ratios.”
Need for Statutory Amendments
CUNA further said it supports statutory changes to the Federal Credit Union Act (FCUA) to provide the NCUA Board with the tools it needs to aid credit unions regarding PCA and other capital issues. The rigid requirements and prohibitions regarding PCA in section 1790d of the Act severely hamper the agency’s ability to aid credit unions.
“As the agency is keenly aware, credit union capital requirements are different than bank requirements in several respects, including that only retained earnings count as Tier I capital for credit unions and thresholds for credit union capital levels are hardwired into statute,” the letter reads. “These limitations restrict the NCUA’s ability to provide accommodations to otherwise healthy credit unions impacted by natural disaster, pandemic, and other crises.”