(April 16, 2021) In a development Friday morning, the NCUA Board announced it had adopted an interim final rule (IFR) by notation vote that reduces the earnings retention requirement for credit unions classified as adequately capitalized, and permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth during the coronavirus crisis.
The board adopted the IFR – which is substantially similar to a rule adopted last May but that lapsed at year-end 2020 – in a notation vote. The IFR is also the subject of a briefing for the board at its regular monthly meeting Thursday (April 22). That same meeting will also include a board briefing on cybersecurity.
The IFR takes effect immediately; the vote also keeps the temporary measures in place until March 31, 2022.
Last May, the board issued an IFR that waived the earnings retention requirement for “adequately capitalized” credit unions and eased net worth restoration plan requirements for some “undercapitalized” credit unions. That rule, approved with an expiration date of Dec. 31, 2020, was intended to help ensure that federally insured credit unions (FICUs) remained operational and liquid during the COVID-19 crisis.
NCUA called this week’s rule “substantially similar” to the regulation adopted nearly a year ago. The agency said that, due to the pandemic’s continued financial and economic disruptions, it was necessary to reintroduce the two temporary relief measures.
Under the first provision of the IFR (reducing the earnings retention requirement for credit unions classified as adequately capitalized), NCUA said those credit unions unable to meet the requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.
“However, if a credit union either poses an undue risk to the National Credit Union Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA Regional Director may require the credit union to submit an earnings transfer waiver request,” the agency said.
Under the second provision (permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth due to the crisis), if a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.
In a statement, NCUA Board Chairman Todd Harper said the changes reflect the impact of the influx of savings by members into their credit unions from stimulus payments and other sources. “The latest round of stimulus spending has further expanded credit unions’ balance sheets,” Harper said. “As a result, many well-run credit unions with positive earnings now have lower net worth ratios. Given the continued uncertainty with the pandemic and share growth many credit unions are seeing, this targeted, tailored and temporary rule will provide critical relief so eligible credit unions can focus their limited resources on their members’ needs instead of planning for earnings transfers and developing detailed net worth restoration plans.”
Board Vice Chairman Kyle Hauptman characterized the rule as a method for allowing credit unions to stay focused on serving members. Board Member Rodney Hood observed that “while this temporary relief wasn’t widely utilized last year when it expired, it now appears we need this tool now for credit unions.”
The IFR has a 60-day comment period, ending on June 18.