Board Action Bulletin
Board Issues Proposal to Help Credit Unions Participating in Treasury’s ECIP
ALEXANDRIA, Va. (Sept. 23, 2021) – Through a live webcast, the National Credit Union Administration Board held its eighth open meeting of 2021 and approved the following items:
- A request to reprogram $2.4 million in surplus funds as part of the mid-session budget.
- A request by the Oregon Department of Consumer and Business Services for an exemption from the NCUA’s member business regulations.
- A request to add three final rules to future NCUA Board agendas.
- A proposed rule that amends the NCUA’s subordinated debt rule.
The NCUA’s Chief Financial Officer also briefed the NCUA Board on the performance of the National Credit Union Share Insurance Fund in the second quarter of 2021, and on the agency’s revised 2021 budget estimates, which currently projects a surplus of $24.6 million by the end of 2021.
Share Insurance Fund Reports Strong Performance in Second Quarter
The National Credit Union Share Insurance Fund reported (opens new window) a net income of $46.3 million and $19.8 billion in assets for the second quarter of 2021. The Share Insurance Fund also reported $60.0 million in total income for the second quarter of 2021. The equity ratio, as of June 30, is 1.23 percent, which is below the Board-approved normal operating level of 1.38 percent.
“During the second quarter of 2021, the credit union system, as a whole, remained on a solid footing,” Chairman Todd M. Harper said. “But, while the economic outlook also showed signs of improvement in the first half of the year, COVID-19 pandemic-relief programs have started coming to an end, and the Delta variant has led to a rising caseload in many communities in the third quarter. We should expect delinquencies and charge-offs to rise in the months ahead, and all credit unions should pay careful attention to their capital, asset quality, earnings, and liquidity. To protect the Share Insurance Fund — and, ultimately, taxpayers — against losses, the NCUA needs to stay on top of these emerging risks and problems in the credit union system.”
As provided by the Federal Credit Union Act, each insured credit union pays to, and maintains with, the Share Insurance Fund a capitalization deposit amount equal to 1 percent of its insured shares. The amounts are based on insured member share deposits outstanding as of Dec. 31 of the preceding year and June 30 of the current year, respectively.
The Share Insurance Fund will receive additional capitalization deposits of approximately $1.1 billion from insured credit unions in October after the NCUA invoices for its semi-annual contributed capital adjustment for credit unions with $50 million or more in assets this month. The NCUA staff projects the Share Insurance Fund’s equity ratio will be 1.28 percent at the end of 2021.
Additionally, for the second quarter of 2021:
- The number of CAMEL codes 4 and 5 credit unions decreased 6.5 percent from the end of the first quarter, to 144 from 154. Assets for these credit unions decreased 7.1 percent from the first quarter, to $9.1 billion from $9.8 billion.
- The number of CAMEL code 3 credit unions increased 1.3 percent from the end of the first quarter, to 764 from 754. Assets for these credit unions increased 8.3 percent from the first quarter, to $48.1 billion from $44.4 billion.
At the end of the second quarter of 2021, there were three federally insured credit union failures that cost the Share Insurance Fund $3.5 million in losses.
The second-quarter figures are preliminary and unaudited. Additional information on the performance of the Share Insurance Fund is available online (opens new window).
Proposed Rule Would Benefit Credit Unions Seeking Secondary Capital from Government Sources
The NCUA Board unanimously approved a proposed rule (opens new window) that would amend the definition of “grandfathered secondary capital” in the NCUA’s approved subordinated debt rules to include any secondary capital issued to the U.S. government or one of its subdivisions, under an application approved by the NCUA before Jan. 1, 2022, regardless of the date of issuance.
“The proposed change would benefit eligible low-income credit unions that are either participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program or other programs administered by the U.S. government that can be used to fund secondary capital,” Chairman Harper said.
This proposed change to the agency’s subordinated debt rules would benefit eligible low-income credit unions that are participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program (opens new window) or in other programs administered by the federal government that can be used to fund secondary capital, if they do not receive these funds by Dec. 31, 2021. Additionally, under this proposed rule, the regulatory treatment of this secondary capital would expire 20 years after issuance or on Jan. 1, 2042, whichever is later.
The Emergency Capital Investment Program was created as part of the Consolidated Appropriations Act, 2021 to help community-based financial institutions support consumers and local small businesses in low-income and underserved communities disproportionately affected by the economic effects of the COVID-19 pandemic. A federally insured credit union must be certified as a Community Development Financial Institution or as a minority depository institution to participate in the program.
Forty-four eligible low-income credit unions have received approval from the NCUA to issue approximately $1.9 billion in secondary capital under the Emergency Capital Investment Program as of Sept. 17.
Comments on the proposed rule (opens new window) must be received 30 days after publication in the Federal Register.
Items Added to the NCUA Board’s 2021 Agenda
The NCUA Board approved by a 2-1 vote the addition of three final rules (opens new window) to the NCUA Board’s agenda for the last quarter of 2021. Vice Chairman Kyle S. Hauptman and Board Member Rodney E. Hood requested the addition of these final rules under Part 791 (opens new window) of the NCUA’s Rules and Regulations.
With this action, the NCUA staff are directed to prepare the following final rules for the Board’s consideration:
- Credit Union Service Organizations, Part 712, to be placed on the agenda for the Oct.21 Board meeting.
- Field of Membership Shared Facility Requirements, Part 701, Appendix B, to be placed on the agenda for the Nov.18 meeting.
- Mortgage Servicing Rights, Parts 703 and 721, to be placed on the agenda for the on Dec.16 meeting.
“It should come as no surprise to anyone that my policy positions on these three rules have not changed since they were first proposed,” Harper said. “Although I will not support this action — because I believe that crafting good rules should not be rushed — I want to be clear that, to me, this item is not a contentious one. There are times in many negotiations where the parties find themselves at an impasse. When that occurs, there are often processes that exist to move beyond the impasse while protecting everyone’s positions and rights.”
Under Part 791, the NCUA Chairman is responsible for the final order of each meeting agenda. Items can be placed on the agenda by the Chairman or at the request of any NCUA Board Member, provided that the request is submitted at least ten days in advance of the next regularly scheduled meeting and is accompanied by an NCUA B-1 form and a Board Action Memorandum that states the specific issues or actions to be considered by the NCUA Board.
Board Approves the Reprograming of $2.4 Million in Funding for Agency Needs
The Board unanimously approved the Chief Financial Officer’s recommendation to redistribute (opens new window) $2.4 million of surplus funds for agency needs.
Approximately $28.6 million in excess funding is currently projected for 2021. Reprogramming a portion of this projected surplus provides funding for new requirements related to cybersecurity, employee relocations, human capital support, and executive briefings and analysis support. Seven new full-time positions related to the NCUA’s cybersecurity programs, the Board Secretary, and the Office of Ethics Counsel were also approved by the NCUA.
“As a steward of the credit union system, the NCUA Board has a responsibility to spend — and save — these extra dollars wisely,” Harper said. “The proposed changes to the 2021 budget and staffing levels make prudent investments and pragmatic commitments aimed at achieving important policy goals related to cybersecurity, ethics, agency operations, and workforce diversity, equity, and inclusion.”
The recommended budgetary reprogramming (opens new window) would cost the NCUA an estimated $2.4 million in 2021, while already approved employee leave payouts will cost approximately $1.6 million. After these expenditures, the NCUA staff projects the residual budget balance for 2021 will be approximately $24.6 million that can be used to offset future budget needs by the agency.
Oregon Member Business Lending Rule Approved
The NCUA Board unanimously approved an exemption for Oregon’s revised member business lending rule (opens new window).
In June 2021, the Oregon Department of Consumer and Business Services submitted a request for the NCUA Board to make a determination that the state’s proposed revisions to the Oregon member business lending rule would meet the standards specified in section 723.10(a) of the NCUA’s regulations. The Board agreed that Oregon’s rule covers all the provisions and is no less restrictive than Part 723 of the NCUA’s Rules and Regulations.
Under the NCUA’s member business lending rule (opens new window), states wishing to have their own versions of the NCUA’s rule must receive NCUA Board approval.
The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.