WASHINGTON—Both credit union trade groups have told NCUA what they think of NCUA’s proposed role on succession planning, with NAFCU offering some pushback and recommendations and CUNA asking why, if the proposal is aimed at reducing mergers among smaller CUs, it adds to their regulatory burden.
Under the proposed rule, the FCU must establish a plan for positions such as officers of the board, management officials, executive committee members, supervisory committee members, and (where provided for in the bylaws) credit committee members.
“NAFCU does not support this proposed rule, as it is burdensome and unnecessary to ensure the safety and soundness of the credit union system,” wrote Regulatory Affairs Counsel Aminah Moore.
Moore expressed concern that the rule may create negative impacts for smaller credit unions as they will be faced with additional regulatory burden. In addition, Moore highlighted that the rule lacks clarity regarding the “key positions” required in a credit union’s succession plan, the requirement that credit unions’ boards of directors have a “working familiarity” with its succession plan, and the steps a credit union should take if it cannot adhere to its succession plan.
Recommendations Offered
Instead of the proposed rulemaking, Moore offered multiple recommendations in the letter, including:
- Mirroring banks’ succession planning requirements and issue guidance
- Conducting new market analysis on the correlation between poor management succession planning and consolidation
- Adding more resources that will assist credit unions in succession planning
- Incorporating succession planning into the agency’s Call Report.
In addition, Moore recommended NCUA focus on promoting the strength of the National Credit Union Share Insurance Fund “which will lead to a stronger credit union industry that is able to focus on the needs of their communities.”
CUNA: Guidance Better than a Rule
Separately, in its comment letter, CUNA said it agrees with NCUA that succession planning is animportant component of a credit union’s overall strategic plan, helping to ensure the appropriate personnel are available to execute the credit union’s strategic plan and mission. But CUNA said while it supports the overall objective of the proposed rule, it believes provisions included in the proposed rulemaking would be more appropriate as guidance than regulation, according to Luke Martone, senior director of advocacy, who signed the letter.
Among the points made in the CUNA letter:
Data Not Helpful
Martone noted that NCUA’s general position is that a regulation requiring FCUs to have a succession plan will reduce credit union mergers, and that it had cited a decrease during the third quarter of 2021 in the number of credit unions with less than $50 million as a possible indication that a lack of succession plans is contributing to this trend.
“However, the NCUA goes on to state that the “available data does not differentiate between those smaller credit unions that consolidated or were liquidated, versus those that expanded into a larger asset category,” Martone stated. “Unfortunately, a lack of the ability to differentiate between those smaller credit unions that were required to merge versus those that simply outgrew their smaller asset category makes such data unhelpful in understanding the connection between a (lack of a) succession plan and an increased likelihood of a forced merger.”
New Duties & Responsibilities
Pointing out that the proposed rule would amend § 701.4, which sets forth the general duties and responsibilities of FCU directors by adding a new paragraph requiring that FCU directors establish and adhere to processes for succession planning for key positions, Martone said the agency should provide guidance, not make additional rules.
“In addition, there has been a trend in recent years of NCUA continually adding to the list of policies that FCU boards must review, understand, and approve; it is starting to get to the point where entire board meetings are now taken up doing annual review and approval of policies, not leaving time foractual substantive discussion,” the letter added.
Further, the fact that succession planning is already included in the NCUA’s Examiner’s Guide is additional support for including the provisions in this proposal as guidance rather than regulation, Martone said.
Banking Industry Guidance
“Lastly, we ask the NCUA to consider the approach of the banking regulators in this area. For example,the Federal Deposit Insurance Corporation (FDIC) addresses succession through guidance rather than in the form of regulation."
Planned Mergers
Martone said CUNA also wants NCUA to consider that in some instances, a merger may be the bestapproach for a credit union and its members.
“We appreciate the NCUA’s concern with unplanned or forced mergers, which often stress or suspend services to members, or potentially present safety and soundness risks that could ultimately lead to losses impacting the National Credit Union Share Insurance Fund,” Martone wrote. “However, we believe there are situations where a—typically small—credit union has a merger plan as the keycomponent of its succession plan. While a plan to merge would not comport with the elements of theproposed rulemaking, we ask the NCUA to consider that sometimes a plan to merge can be the best course to serve the FCU’s members.”