NCUA Board Meeting: Good News for CUs with Changes to NOL, Budget; Agency OKs CCULR

The National Credit Union Administration Board tackled a full agenda today, including a number of high-profile items closely watched by the industry.

The Board lowered the Normal Operating Level for the National Credit Union Share Insurance Fund (NCUSIF) to 1.33 percent, down from 1.38 percent. The Federal Credit Union Act requires the Normal Operating Level to be set at not less than 1.2% and not more than 1.5%. It was set by the board at 1.38% for 2020 and remained at that level throughout 2021.

“We recognize this for the positive step it is, but we continue to ask the NCUA Board to reset the normal operating level to its historical level of 1.3 percent,” said League President/CEO Carrie Hunt. “We believe the NOL at 1.3 percent provides adequate protection for taxpayers and the industry, while ensuring credit unions hold on to more of their money for the benefit of their members and communities.”

Also positive were statements from board members indicating credit unions need not budget for an NCUSIF premium in 2022.

The Board also approved the final rule on the Complex Credit Union Leverage Ratio (CCULR), which has been in the works for two years. The rule offers a new regulatory framework designed to simplify risk-based capital requirements for “complex” credit unions. Following NCUA Board action in January 2021, complex credit unions are now defined as those with more than $500 million in assets.

NCUA’s proposal would provide two alternatives to the adoption of risk-based capital requirements by complex credit unions set to become effective on Jan. 1, 2022.

“We recognize the careful consideration that went into crafting this rule and appreciate the entire Board’s responsiveness in addressing some of our most significant concerns,” noted Hunt. “Specifically, we appreciate the Board working to develop consensus around the more-favorable 9 percent leverage ratio and we’re grateful to Board Member Hood for his efforts related to the treatment of goodwill and the positive dialogue with Vice Chairman Hauptman’s office. We will closely watch credit union capital to see if the combination of these two rules hits the right balance; credit unions should be able to deploy capital to the membership.”

NCUA staff said a majority of credit unions will not have to raise their capital ratios as a result of the new rule, but two members of the NCUA board expressed concerns -- noting, as a practical matter, that credit unions will choose to hold more reserves based upon the CCULR standard where the ultimate cost is borne by the members.

Read Chairman Harper’s statement on the rule

The Board also approved its 2022-2023 budget, with some notable changes. Your League engaged on the budget with both a comment letter and testimony from League President/CEO Carrie Hunt.

We were most concerned with NCUA’s proposal to add 29 FTEs to its examination staff, particularly vexing given that the past year has proven remote exams work and NCUA’s own considerable investments in virtual examination resources. In a significant win for credit unions, the approved budget eliminates the addition of 46 employees, including the proposed 29 examiner positions.

Also of note: Federal credit unions will pay a lower operating fee in 2022 as the result of unspent funds from 2021. Overall, the agency said, federal credit unions will see an almost 30% decrease in what had been proposed for the operating fee in 2022.

The board voted 3-to-0 for a final rule that permits federal credit unions to purchase MSAs from other federally insured credit unions while saying it has also put in place “proper safeguards to mitigate the potential risks.” Under the final rule, federal credit unions with a CAMELS composite rating of 1 or 2, including a management component rating of 1 or 2, may purchase the mortgage servicing rights of loans from other federally insured credit unions, provided that:

• The underlying mortgage loans of the assets are loans the federal credit union is otherwise empowered to grant
• The purchase will be made in accordance with the federal credit union’s written policies that address the risk found in these investments and servicing practices
• The federal credit union’s board of directors or investment committee approves the purchase in advance

The Board also announced new initiatives to support small credit unions, including roundtables to focus on small credit union support. Hunt notes her support for this initiative.

“Other highlights of the recommended budget include more resources for small credit unions. This was a high priority for me. Small, low-income, and minority credit unions are vital to the continued health of the credit union system and are often the only providers of safe, fair, and affordable financial services in communities of color, underserved areas, and rural communities,” noted NCUA Board Chairman Todd Harper.

League President/CEO Carrie Hunt had called for additional resources for small credit unions in her budget testimony. She recommended a shift in focus in delivering support to small credit unions by looking to industry partners and interested organizations, who through outside grant funding from NCUA, might be better positioned to address small credit unions' needs.