Proposal Requires Succession Planning for FCUs

(Jan. 28, 2022) Boards of federal credit unions (FCUs) would be required to “establish and adhere to” processes for succession planning under a proposal issued, on a 2-1 vote, by the NCUA Board Thursday.

The proposal only affects FCUs. NCUA noted that federally insured, state-chartered credit unions (FISCUs) must comply with any state-specific requirements pertaining to succession planning. “However, the Board encourages FISCU boards, to the extent compatible with state law, to undertake succession planning efforts to help ensure continued viability of their credit union,” NCUA said in the proposal.

In fact, the proposal’s summary notes that, although it would apply only to FCUs, “the Board’s purpose is to encourage and strengthen succession planning for all credit unions.”

The proposal also does not affect federally insured corporate credit unions, the agency noted. NCUA said its regulations (under 12 CFR part 704) already “adequately address succession planning” at the corporates.

According to the proposal, succession plans will help to ensure that the FCU has plans to fill key positions, such as officers of the board, management officials, executive committee members, supervisory committee members, and (if provided for in the bylaws) the members of the credit committee to provide continuity of operations.

“In addition, the proposed rule would require directors to be knowledgeable about the FCU’s succession plan,” the proposal states.

One of the reasons that the proposal was issued, according to the agency, is that credit union consolidation largely through mergers is being driven by lack of succession planning. “An NCUA analysis found that poor management succession planning was either a primary or secondary reason for almost a third (32 percent) of credit union consolidations,” the agency said.

At the same time, the agency said, another reason for a heightened focus on succession planning is the ongoing retirements of the “Baby Boomer” generation of individuals born between 1946 and 1964.

“According to some sources, approximately 10 percent of credit union chief executive officers were expected to retire between 2019 and 2021,” the agency asserted.

NCUA Board Member Rodney Hood voted against the proposal because, he said, the agency has “other tools in its toolbox” other than a regulation to help credit unions deal with succession planning. He suggested, for example, greater uses of webinars sponsored by the agency. Both Board Chairman Todd Harper and Vice Chairman Kyle Hauptman supported issuing the proposal for a 60-day comment period.

In other action, the board:

  • Heard a briefing on the agency’s Central Liquidity Facility (CLF), including plans to increase credit union membership in the facility to “to better serve individual CUs, the Share Insurance Fund and the system overall.” The agency also noted that it continues to advocate for Congress restoring and making permanent the enhanced authorities provided to the CLF as part of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and extended (until the end of 2021) by Congress in early 2021. The enhancements are: Increasing the facility’s maximum legal borrowing authority; permitting temporary access for corporate credit unions, as agent members, to borrow for their own needs; providing greater flexibility and affordability to agent members to join and serve smaller groups of their covered institutions than their entire memberships; and providing the NCUA Board with more clarity and flexibility regarding the loans.
  • Listened to a briefing on the agency’s supervisory priorities for 2022 (which echoed the letter sent to all federally insured credit unions the week before). However, the agency staff said regarding the current expected credit loss (CECL) accounting standard, which takes effect for credit unions next year, the agency will be providing training and guidance to credit unions as they adopt the new accounting model – including a spreadsheet to be released later this year. Additional training, the agency said, would be made available to credit unions on an as-needed basis.
  • Heard an update on its final rule (approved by a board notation vote late last month) on adjusting the maximum amount of civil monetary penalty (CMP) amounts, as required by statute, a somewhat routine action that other federal financial institution regulators have already taken this month.


Proposed Rule, Part 701, Succession Planning.

Board Briefing, 2022 Supervisory Priorities

Board Briefing, Central Liquidity Facility, Expiration of CARES and Consolidated Appropriations Acts Impact.

Board Briefing, Final Rule, Part 747, Statutory Inflation of Civil Monetary Penalties.