WASHINGTON—Trade groups representing both federal and state-chartered credit unions have expressed support for NCUA's proposed rule to amend its risk-based net worth requirement.
NAFCU said the relief provided by it "will enable credit unions to better prioritize service to members and support lending activities.” NASCUS said it will provide “relief” to credit unions.
As CUToday.info reported, the proposal was put out by the NCUA board in January by a 2-1 vote, with the Board Member Todd Harper dissenting. Harper called the proposal “hocus pocus worthy of Harry Houdini.” While the two board members who voted in favor of the proposal, Kyle Hauptman and Rodney Hood, remain on the board, Harper has since been elevated to NCUA chairman, a position that controls the agenda items for board meetings.
In its letter, NAFCU’s Andrew Morris, senior counsel for research and policy, wrote, "The need for capital relief cannot be overstated, even as the country begins to surmount the worst effects of the COVID-19 pandemic. The entire credit union industry has been working tirelessly to fuel the engine of economic recovery with new loans, forbearances, and other accommodations to address the hardships faced by members who have lost jobs or experienced strains on household finances for the past year. The intensity of this member-focused activity has coincided with increased pressure on net worth and risk based net worth ratios resulting from an elevated savings rate and influx of government stimulus."
The Definition
The agency's proposal would define a complex credit union for purposes of the current RBNW requirement as a credit union with quarter-end assets that exceed $500 million and a RBNW requirement that exceeds 6% in advance of the 2022 effective date of the final risk-based capital (RBC) rule.
Morris said NAFCU agreed with the NCUA's assessment "that the amended threshold will better match the prospective [RBC] requirement without presenting any risk to safety and soundness."
To ensure credit unions can fully realize the benefits of the relief and focus on their members' needs, Morris called on the NCUA to swiftly finalize and publish the rule.
"Credit unions are now approaching the second quarter of 2021," Morris flagged. "If the amendment is not finalized as soon as possible, the administrative benefits associated with increasing the threshold will be substantially diluted for those credit unions who must hold additional capital under the current RBNW rule and expect to remain under $500 million in assets after January 1, 2022."
Other Relief ‘Opportunities’
In addition to offering support for the RBNW proposal, Morris identified additional opportunities for capital relief:
- Asset threshold: Morris reiterated NAFCU's concerns for credit unions approaching the $10 billion threshold, at which point the CFPB also has supervisory authorities, as deposits have increased amid the pandemic. He offered the association's support for the NCUA's interim final rule (IFR) approved during its March board meeting that allows for additional time to prepare for heightened regulatory and supervisory demands once this threshold is hit by permitting federally-insured credit unions to use asset data as of March 31, 2020, for the 2021 and 2022 calendar years to determine whether the institution is subject to capital planning and stress testing supervision from the NCUA’s Office of National Examinations and Supervisions. Banking regulators have provided similar relief to community banks, NAFCU noted.
- Prompt correct action (PCA): Morris advocated for the NCUA to reinstate and extend an IFR – which expired Dec. 31, 2020 – that provided PCA flexibility by temporarily waiving the earnings retention requirement for any FICU that is classified as adequately capitalized, and would permit FICUs to submit simplified net worth restoration plans if they attest that a reduction in capital was caused by share growth resulting from a temporary condition due to the coronavirus pandemic.
NASCUS Cites Relief Provided
Meanwhile, the National Association of State Credit Union Supervisors (NASCUS) said it supports an NCUA proposal currently out for comment that would raise the asset threshold from $50 million to $500 million and define a credit union as "complex" under risk-based net worth requirements.
The modification would not result in a material increase in risk to the National Credit Union Share Insurance Fund (NCUSIF) and would benefit credit unions and their members alike, NASCUS said.
"We note the fact that the proposed change would provide relief to 1,737 federally insured credit unions (FICUs) while maintaining coverage of over 81% of assets held by FICUs,” NASCUS stated. “While an overwhelming majority of credit union assets would still be covered, more modestly sized credit unions would be able to refocus on responding to the pandemic and serving their membership.”
In addition, NASCUS said it supports a coherence of the current threshold to the threshold taking effect on Jan. 1, 2022.
The full letter can be found here.