As Frank mentioned in his comments, the CARES Act contains statutory relief for the CLF. The changes will provide greater flexibility and relief for credit unions. It will now be easier to join the CLF, either as a regular member or through your corporate credit union’s agent relationship, and access liquidity when and if the need arises. We are also busy working on some corresponding regulatory changes to implement and support the legislative measures more expeditiously.
For example, Chairman Hood discussed the potential changes being considered to the current CLF rule, Part 725 of the NCUA’s regulations, that would streamline Facility access so it is easier to join and easier to borrow. We are reviewing things like the waiting period on loans for new members, the collateral requirements for securing loans and the notice period restrictions that apply when a credit union seeks to terminate their membership and redeem their paid-in capital stock.
We realize that the temporary nature of the legislative changes means we will have to carefully craft corresponding changes to the regulation. We want to make sure that it is very clear as to what is affected and how the NCUA would handle the transition back to a steady state once the pandemic is resolved and these temporary measures end.
One area where we will focus our regulatory relief is clarifying that corporate credit unions may now create an Agent group that has a subset of their members. We believe this will make it more economically feasible for them to extend membership coverage to smaller credit unions. Another area we will focus upon is the need to specify how a corporate that becomes an agent member can also join the CLF on their own behalf and borrow for their own liquidity needs if they want.
So, these are some examples of things staff is developing for the Board’s consideration that we believe will complement and facilitate the legislative changes and extend important relief to our new members. The pace of COVID-19-related activity has been challenging, but staff continue to work post-haste to bring these relief measures forward at the earliest opportunity.
As the Chairman stated, CLF membership as a form of liquidity insurance for individual credit unions and the broader credit union system. A credit union may borrow for its own liquidity needs and its membership benefits the system’s access to external funds by providing the credit union system and the Share Insurance Fund with a vital contingent source of funds to assist with system-wide liquidity events.
CLF members also earn a quarterly dividend on their paid-in stock, which helps carry the cost of membership. A credit union may become a CLF member by completing a membership application and contributing one-half of its stock subscription requirement, which equates to approximately one-fourth of one-percent of a credit union’s assets.
Please visit the CLF’s webpage listed on the resources page of the slides for more information on becoming a member.
In addition to the legislative and regulatory changes being implemented, staff are evaluating additional areas where the agency could provide sensible relief to help credit unions cope with the impact of COVID-19. For example, we are looking at the troubled debt restructurings, or TDRs, in light of the new CARES legislation. We hope to have more information on TDRs and a webinar in the future. We are also evaluating other areas where we can provide credit unions with operational, lending, and funding source flexibilities to help keep their employees safe, serve and support their members, and have more options related to liquidity.
In addition to the temporary relief measures that may be under consideration, I want to remind credit unions of additional flexibility they have to comply with existing regulations, including real estate appraisals. There are various existing flexibilities available for appraisals that would still comply with the Uniform Standards of Professional Appraisal Practice, also known as USPAP. These standards are developed and approved by The Appraisal Foundation, not the NCUA. USPAP provides for various flexibilities, including not requiring an interior, on-site inspection, at the discretion of the appraiser. Any appraisal that meets USPAP requirements is allowable under the NCUA’s appraisal regulations.
I also want to remind you that in September 2019, the NCUA Board provided additional flexibility to credit unions and accounting professionals by eliminating the 120-day timeframe to deliver an audit report. Therefore, credit unions and accounting professionals can agree on a reasonable timeframe for delivering an audit report, taking into consideration the impact of the COVID-19 pandemic.
We understand that some credit unions may experience a decrease in their net worth ratio as a result of the COVID-19 pandemic. We are developing a streamlined net worth restoration plan template to assist these credit unions with developing and submitting a plan, as required by the Federal Credit Union Act. If you project that your net worth will fall below six percent, please contact your NCUA examiner or regional office to discuss options for submitting a net worth restoration plan.
Lastly, many of the NCUA’s regulations are intended to address the safe and sound operation of credit unions. The foundation of these regulations are board-approved policies and other governance practices, such as periodic approvals and reviews. Strong corporate governance is necessary to maintain a safe and sound credit union system and recover from the potential unprecedented upheaval that results from the COVID-19 pandemic.
While the NCUA is not eliminating these regulatory requirements, I want to assure you that the agency will be reasonable in how these regulations are applied. For example, we understand that credit unions may need to make exceptions to their policies to assist members affected by the COVID-19 pandemic. Generally, the agency will not criticize these exceptions as long as they are reasonable.
I want you to know that we will make every effort to work with each individual credit union and consider its unique situation. Consistent with long-standing supervisory practices, our examiners have been trained to consider the extraordinary circumstances credit unions are facing when reviewing your financial and operational condition over the coming months.
Over the last several years, the NCUA has made a concerted effort to update regulations that were overly prescriptive or unnecessary in a modern financial environment. As such, many of the agency’s regulations are principles-based, meaning they provide a basic framework that allows a credit union to determine the best way to structure its operations. This allows the NCUA to work with your credit union on a case-by-case basis to provide any relief necessary that may be specific to your credit union. If you have questions, please reach out to your NCUA examiner or regional office.
We did receive a few questions related to regulatory relief. Thank you to those of you that sent them in. The first question I want to address is, “If a credit union has temporarily suspended Regulation D fees from money markets and savings accounts, should they classify them as demand deposit accounts on the Call Report?”
My response is that credit unions should follow Federal Reserve guidance when determining how to classify transaction and non-transaction accounts for purposes of complying with Regulation D. Additional information is available at www.frbservices.org (opens new window), under the ‘Central Bank Resources’ heading.1
There were a number of questions specific to providing relief to members on mortgage payments and how this will effect accrued interest, escrow, and disclosure requirements. We are in the process of developing guidance to answer these questions and provide additional information to credit unions. There will also be a webinar to discuss the changes the CARES Act made to mortgage relief and troubled debt restructurings. We understand this is an area where credit unions are probably getting a lot of questions and there may still be a lot of confusion, so we are working diligently to issue guidance as soon as possible.
I’m now going to talk about the NCUA’s examination and supervision approach. Yesterday, Chairman Hood issued a Letter to Credit Unions that outlines the NCUA’s approach to examinations and supervision in response to the COVID-19 pandemic. Our top priority is the safety of agency staff, credit union employees, and credit union members. On March 16, 2020, the NCUA mandated a strict offsite posture for all employees and contracted support staff. This offsite mandate will remain in place until further notice and at least through May 1, 2020. We will reevaluate this approach through the duration of the pandemic and will notify credit unions of any change in the mandatory offsite posture or examination approach.
During this time, the NCUA will limit the burden imposed on credit unions so that you can focus on providing uninterrupted service to your members. Therefore, we are prioritizing our outreach efforts. For federally insured, state-chartered credit unions, each regional office will continue to coordinate examination and supervision efforts with the state supervisory authorities. I’ll now go through each of the NCUA’s examination and supervision priorities in more detail.
The top supervisory priority is supervising credit unions that are experiencing significant financial or operational problems. This includes credit unions that have asked for assistance and those that the NCUA determines may need assistance based on their financial and operational condition. Examiners will prioritize outreach and supervision efforts for these credit unions and will work with them to identify what assistance is needed. If you need assistance or have questions about the type of assistance that is available, please contact your NCUA examiner or regional office.
The next supervisory priority involves monitoring the impact of COVID-19 on all credit unions. Between March 30 and April 10, examiners will be contacting each credit union to discuss the institution’s operational and financial status, including any associated challenges, and whether any assistance is needed. This data collection will serve as the baseline for us to monitor the impact of COVID-19 on each credit union’s condition going forward. We are mindful that you may have already provided some of this information to your state supervisory authority, so we are working closely with them to eliminate redundancy. We have also instructed our examination staff to obtain as much information from your website as possible before contacting you. After this initial outreach, NCUA staff will check-in periodically with each credit union for the duration of the COVID-19 pandemic.
Our third supervisory priority will focus on conducting examinations offsite. Since the NCUA mandated a strict offsite examination and supervision approach on March 16, 2020, examiners have been working with credit unions to obtain documentation so they can complete examination procedures offsite.
However, examiners will generally not require a credit union to provide information to conduct offsite examination work. There may be certain instances when the NCUA must require a credit union to provide information, such as in a situation that is serious or time-sensitive. However, these instances will be rare and must by authorized by the Executive Director. So generally, credit unions should not feel pressured to take time to address an offsite examination request if you and your staff are occupied with addressing the impact of the COVID-19 crisis on your operations, employees, and members.
For credit unions that are in a condition to provide examination documents and make staff available, NCUA examiners will continue to conduct offsite examination work. We understand that some agencies have paused examinations during this time. The NCUA sees value in conducting as much offsite examination work as possible during this time, as long as credit unions are able to do so. Completing some examinations offsite will help both the NCUA and credit unions plan for resource needs when the NCUA reintroduces onsite examinations. And once the offsite posture has concluded, business as usual may look very different. The NCUA may have to reallocate resources to address credit unions impacted by COVID-19. Credit unions also will likely be facing resource constraints or have to focus on resumption of services or other challenges that result from the COVID-19 pandemic. In some cases, if examination work can be completed offsite now, the NCUA may not conduct any further examination work for a credit union during the 2020 calendar year.
I want to explain what the offsite examination process will look like for those credit unions that are capable of supporting at least some offsite examination work. For those credit unions that are able, examiners will work with them to facilitate the secure exchange of information needed to conduct offsite examination and supervision work, and will be mindful of the impact information requests may have on the credit union. Examiners may schedule virtual meetings with credit union staff or officials to discuss an examination if the credit union staff and officials are willing and able to do so.
We understand that credit unions need to focus on continuing uninterrupted service to members. Therefore, while examiners will be conducting examination work offsite, the NCUA will generally not issue examination reports to credit unions until further notice. If the majority of an examination was completed before March 16, 2020, the Regional Director may authorize the examiner to issue a report to a credit union to formally conclude that examination.
We are mindful of how COVID-19 may affect your operations going forward. Once the NCUA begins to issue examination reports, any corrective actions we provide will be appropriately prioritized considering the impact COVID-19 has had on the institution’s operations and financial condition.
For credit unions that currently have an outstanding corrective action, such as a Document of Resolution or Letter of Understanding and Agreement, examiners will be reasonable with respect to any credit union requests to postpone due dates or reprioritize concerns that need to be addressed. Credit unions should work with your examiner if due date changes or other flexibilities are necessary. If you have questions about the NCUA’s offsite examination and supervision approach, please contact your NCUA regional office.
I hope this provides you with some certainty about how the NCUA will conduct examination and supervision activities over the next month. Our goal is to continue to meet the NCUA’s mission of protecting credit unions and the consumers who own them. I also encourage you to continue to review the Frequently Asked Questions Regarding COVID-19 on the NCUA’s website. We will continue to update these FAQs as we receive questions and as more information becomes available.
Before I wrap up my remarks, I want to note additional support provided by NCUA for credit unions. The Office of Credit Union Resources and Expansion, also known as CURE, has many resources available to credit unions. This includes support for Minority Depository Institutions, training through an online portal, and information on grants and loans.
Let’s discuss the Community Development Revolving Grant and Loan program (CDRLF) first. The CDRLF program is funded by Congressional Appropriations. This year, the NCUA received $1.5 million to be used for grant funding. We also have a revolving loan credit line of approximately $14 million dollars of which there is $8 million currently available. To be eligible for these funds, a credit union must be federally insured and hold the NCUA low-income designation. State-chartered credit unions should contact their state supervisory authority to determine their low-income designation criteria and benefits. In order to receive these grant funds, credit unions must implement the grant initiative and submit related receipts.
To address the challenges credit unions are facing related to the COVID-19, the NCUA has earmarked $800,000 for grants and $4 million in loan funds. Loan funds may be used for programs to assist the elderly, schoolchildren, small business, and credit union operations that may have been impacted as a result of the pandemic. Pertinent dates for the grant round are shown in the Appendix to the slides.
In addition to the CDRLF grants and loans, the NCUA supports credit unions participating in the US Treasury’s Community Development Financial Institutions Fund certification (opens new window). Credit unions that hold the CDFI certification gain access to technical assistance and CDFI Fund programs that inject new sources of capital into neighborhoods that lack access to financing. Here at the NCUA, for credit unions that qualify, we offer a streamlined CDFI application. Credit unions submit their savings and loan data, the NCUA provides the required analysis, and, if the credit union meets certain indicators, the credit union is provided the CDFI streamlined application and the NCUA’s analysis to submit to CDFI Fund, who makes the final determination.
We have included links to our programs and related guides on the resources slide of today’s presentation.
I will now turn it back over to Chairman Hood for his closing remarks.