ALEXANDRIA, Va.–The NCUA board has put out for 60-day comment a proposal that would adjust the asset threshold for credit unions supervised by its Office of National Examinations and Supervision (ONES).
The agency has raised the threshold to $15 billion from $10 billion.
Specifically, put out for comment was the Notice of Proposed Rulemaking, Parts 700, 701, 702, 708a, 708b, 750, and 790, Asset Threshold for Determining the Appropriate Supervisory Office.
Without the change, approximately nine credit unions would transition to supervision by ONES effective Jan. 1, 2023, which would require an “extensive” investment by NCUA, staff said. With the change, just one CU will transition to ONES, agency staff added.
“This proposed rule results from staff recommendations and the collaboration between all three board offices during the development of the NCUA’s 2022 and 2023 budget, which we approved in December,” said NCUA Chairman Todd Harper. “This proposed rule is also a natural evolution in the agency’s examination program resulting from industry growth and a reconsideration of risk management.”
Harper said that over the last two years many federally insured credit unions have experienced significant balance sheet growth resulting from three stimulus packages, changes in consumer behavior, and other pandemic-related policy actions. He noted, for example, that credit unions with just below $10 billion in total assets saw their balances sheets grow by approximately 14% on average in 2020 during the first year of the pandemic—and more than 34% in one case.
In contrast, in 2019, these same credit unions saw their assets increase, on average, by 9%, he said.
The Result & The Reasons
As a result of the new thresholds, Harper said credit unions with assets between $10 billion and $15 billion would remain with their current regional office, and that all large consumer credit unions currently under ONES’ supervision with less than $15 billion in assets would continue to be supervised by ONES.
“No other regulatory requirements for credit unions covered under these regulations would be altered,” said Harper, adding the board made the change for several reasons:
- Resource allocation and risk management. “First, the agency can more effectively manage its resources by continuing to supervise most credit unions with between $10 billion and $15 billion in assets through the regional offices,” he said. “Without this adjustment, the number of covered credit unions supervised by ONES would nearly double in 2023. That would require a substantial reallocation of personnel within the agency.”
- The hybrid arrangement in the supervision of the system’s largest credit unions provides other benefits to NCUA. Those benefits, he said, include sharing knowledge and expertise between ONES and regional staff, creating new developmental opportunities for examiners, and ensuring credit unions that transition to ONES’ supervision are better prepared for the change.
- The board has reconsidered the level of risk to the National Credit Union Share Insurance Fund posed by a credit union with between $10 billion and $15 billion in assets.
“Finally,” said Harper, “credit unions with $10 billion or more in assets are subject to capital planning requirements. For those credit unions that will be new to this process, what is the timeline for when they need to comply with those regulations? And, how will we train our regional examiners about their new responsibilities related to supervising for capital planning?
Hauptman: Support For Several Reasons
NCUA Vice Chairman Kyle Hauptman said he is supportive of the change for several reasons.
“First, the relative risk to the share insurance fund today for a $15 billion FICU represents the same relative risk as a $10 billion FICU did in 2013 – when tier 1 CUs first transitioned to ONES supervision,” Said Hauptman. “Second, this adjustment will allow NCUA to more efficiently manage its resources by continuing to supervise most tier 1 covered credit union through the Regional Offices. Without this adjustment, the number of covered credit unions supervised by ONES would nearly double in calendar year 2023 requiring substantial reallocation of agency resources. That reallocation would, of course, impact the budget.”
Finally, said Hauptman, the regulatory requirements for $10 billion credit unions are not affected by the proposed rule. He noted, for example, capital planning and stress testing are triggered at $10 billion in assets.
“These requirements will remain in effect regardless of supervisory office,” he said. “Right now, the proposed rule contemplates FICUs between $10 billion and $15 billion that have already transitioned to ONES supervision will remain under ONES supervision. Leaving these credit unions with ONES rather than transitioning them back to the regions is less disruptive to both the credit unions and NCUA.”
Asked by Hauptman how this change might affect tier 1 state chartered credit unions and supervisors, agency staff said it should have little effect.
Hood: Change “Makes Sense”
Noting many credit unions have experienced significant balance sheet growth during the pandemic due to government stimulus and other factors, Hood said it “makes sense” to me to raise the threshold from $10 billion to $15 billion for national NCUA supervision.”