ALEXANDRIA, Va.–NCUA Chairman Rodney Hood has responded to a request from the chairman of the Senate Committee on Banking to identify some “dramatic steps” to improve services to Americans and bolster the economy in response to the coronavirus pandemic, incuding steps Congress could take.
As CUToday.info reported here, Sen. Mike Crapo (R-ID), chair of the Senate Committee on Banking, Housing and Urban Affairs, sent a letter to the Fed, the OCC the FDIC and the NCUA in early April in which he said “due to the unprecedented shutdown of businesses to prevent the spread of COVID-19, bold and dramatic steps are needed.”
Crapo told the heads of the regulatory agencies that in order to boost economic activity they need to find more ways to help strengthen the Paycheck Protection Program, as well as to “right-size regulations to promote lending.”
‘Prudent’ Guidance
In the letter, Hood said the agency has been working to provide “prudent, meaningful” guidance and regulatory relief to credit unions, including sending a Letter to Credit Unions on Paycheck Protection Program loans and ongoing work with the SBA to respond to questions around the program. NCUA has also given a 0% risk weighting to PPP loans, as required by the CARES Act, Hood wrote, acknowledging some credit unions have “encountered difficulty” with the PPP.
Hood told Crapo NCUA has also moved to provide guidance around virtual annual meetings, branch services, and the filing of call reports, and made adjustments to its supervision and exam program while also making a priority out of issuing the $1.5 million FY 2020 Community Development Revolving Loan Fund (CDRLF) grants appropriated by Congress to credit unions severely impacted by the COVID-19 pandemic.
Hood further said since credit unions are unable to access the PPP as borrowers, additional funding for CDRLF grants could help support more credit unions in responding to the fallout from COVID-19.
Other Points Made
Other points made by Hood:
- NCUA’s Central Liquidity Facility (CLF) is most effective when membership is sufficiently large to create the critical mass of capital amounts needed to achieve sizable borrowing authority, and the agency must prepare for the possibility the CLF will once again prove vital in addressing the liquidity needs for credit unions and the Share Insurance Fund. Hood said the additional CLF borrowing authority granted by Congress is most welcome. “By constituting an agent network and making the CLF more robust, we have the chance to provide thousands of smaller credit unions with access to this unique form of liquidity,” Hood wrote.
- NCUA has adopted changes to the loan participation rule to provide additional liquidity for credit unions.
- Prudent efforts by credit unions consistent with safe and sound lending practices will not be subject to examiner criticism.
- Where operational challenges persist, regulators will expedite, as appropriate, any request to increase availability of services in impacted communities.
- NCUA is working with financial institutions in scheduling examinations or inspections to minimize disruption to credit union services.
Recommendations Made
In his letter, Crapo said he also wanted the agencies to provide the Banking Committee with statutory changes and recommendations necessary to stabilize markets and expand lending during the COVID-19 crisis.
To that end, Hood said NCUA has identified four areas where statutory changes would assist the agency’s efforts in light of the pandemic, the first two of which are aimed at improving liquidity for credit unions:
- Make changes to the Central Liquidity Facility permanent. “The temporary changes to the Central Liquidity Facility should be made permanent. This will provide regulatory certainty to credit unions to better prepare the credit union system and the NCUA for any future emergencies,” Hood wrote. “Emergency liquidity capacity that does not require special efforts to constitute in a crisis is vital to the NCUA’s ability to maintain the safety and soundness of the credit union system.”
- Grant temporary authority for the NCUA board to waive the limit for federally chartered credit unions lending to other credit unions: Hood noted the figure currently sits at 25% of paid-in and unimpaired capital and surplus. “Raising this level during the pandemic will allow excess liquidity to flow from healthy credit unions to credit unions in need of funding,” the letter reads.
Three Temporary Changes
In the letter, Hood said NCUA also recommends three temporary changes to the current prompt corrective action framework to provide regulatory relief. The recommendations include:
- Temporary reduction in minimum capital standards for federally insured credit unions. “Reduce the level at which credit unions are considered well capitalized from a net-worth ratio of 7% to 6% and adequately capitalized from 6% percent to 5% during the pandemic.
- Temporary waiver of net-worth restoration plan requirement. Hood urged Congress to grant the NCUA Board the authority to waive, for up to 180 days, the requirement of a net-worth restoration plan for credit unions that are less than adequately capitalized during the pandemic.
- Temporary increase from $5 million to $100 million for the asset threshold below which the NCUA Board can delegate decisions related to critically undercapitalized credit unions. “Some credit unions are likely to come under capital stress as insured shares increase and/or loans become non-performing,” wrote Hood. “This situation is hopefully temporary, but these changes will provide the NCUA flexibility in dealing with credit unions that are safe and sound but experiencing temporary fluctuations in their capital levels during this pandemic.”
Lending Standards Changes
Hood told Crapo the agency is also recommending three temporary changes be made to lending standards in order to assist credit unions. The three changes include:
- Temporarily raise the Member Business Lending Cap. “Business loans that lack government backing can make up only 12.25% of most credit unions’ balance sheets,” the letter reads. “During the recovery period, raise the Member Business Lending cap to 20%. This adjustment will inject vital capital into the small businesses credit unions serve.”
- Permanently increase the federal credit union loan maturity limit from 15 years to 30 years. Hood noted credit unions are unable to issue many types of loans with a maturity limit beyond 15 years, with mortgages being a key exception. “Extending this term will increase the likelihood that credit unions can lend to small businesses on affordable terms, and better conduct loan workouts with impacted borrowers,” the letter states.
- Permanently expand credit union reach for underserved areas. "Authorize all credit union charters to apply for serving areas designated as underserved,” suggested Hood. “Currently, only multiple common bond federal credit unions are authorized to serve underserved areas. Extending this will provide greater access to financial products and services to those who may have been the most impacted by the pandemic. Additionally, designate Opportunity Zones as underserved areas and allow any credit union located in a designated Opportunity Zone the ability to extend service to businesses and individuals who live or work in the designated area.”
Permanent Statutory Changes
Hood said the pandemic has prompted many credit unions to significantly limit or suspend in-person transactions in their branches, forcing many members to conduct all of their financial transactions through online banking and other electronic means.
“Consumer survey data show that the share of consumers using online banking is strong and the share using mobile banking via a smartphone has grown rapidly in recent years,” wrote Hood.
As a result, the chairman said several permanent statutory changes to allow credit unions to best serve members are needed, including “reasonable proximity.”
“If a multiple common bond credit union wants to offer services to select employee groups or associations, the group seeking credit union service currently has to be in reasonable proximity to a credit union service facility,” the letter states. “This requirement is outdated and unnecessarily restricts access to credit union services for individuals and businesses. NCUA requests that the reasonable proximity requirement be removed or significantly amended to permit greater flexibility for members to join a credit union. Field of membership eligibility requirements would remain in place.
Vendor Authority
Hood closed the letter by touching on a point he and other NCUA board members have made during recent meetings, which is a desire for NCUA to have oversight authority over vendors. While other financial regulators have the authority, the credit union trade groups have opposed such authority.
Hood told Crapo having the authority would improve the ability to supervise for third-party cybersecurity risks.