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Dec. 14, 2018

Alt capital gets higher priority,
new name in final reform report

Alternative capital will be referred to as “subordinated debt” and its implementation through regulation raised to a “first-tier” priority, under a final regulatory reform plan adopted by the NCUA Board Thursday. NASCUS has long advocated for the agency to consider alternative capital for credit unions subject to risk-based capital requirements.

The change in the priority for proposing regulations allowing alternative forms of capital under risk-based capital rules, according to NCUA’s Report 2 of the Regulatory Reform Task Force, was spurred by the issue being “a priority for the Chairman, the agency, and commenters,” the report states. “As such, all recommendations associated with subordinated debt were moved to Tier 1.” However, the report offers no other details on the definition (for purposes of NCUA rulemaking) of “subordinated debt,” including how it would be structured.

“Tier 1” priorities are those that the agency considers the most important targets for reform and that should be undertaken within the first two years of its four-year regulatory reform project.

The final report adopted by the NCUA Board at its regular monthly meeting follows up on a draft issued in summer 2017, and then issued for public comment. In that report, alternative capital for purposes of meeting risk-based capital requirements (a priority for state credit unions and NASCUS) was listed as a “tier 2” change (meaning, action in year three of the four-year agenda). In last year’s draft report, NCUA said it was considering whether to propose a rule on alternative forms of capital federally insured credit unions (LICUs) could use in meeting capital standards. The agency indicated it would consider whether to make changes to the secondary capital regulation for LICUs and whether or not to authorize supplemental capital.

But the report adopted Thursday raises the priority, meaning it could be addressed within the coming year. In fact, in October, NCUA Board Member Rick Metsger said the board, “in the not-too-distant future” would have the opportunity to adopt a final alternative capital rule with an implementation date to coincide with the new effective date for risk-based capital, now set to take effect in 2021. NCUA Board Chairman J. Mark McWatters concurred with those comments. The agency already has a leg up on this issue, as it issued an advance notice of proposed rulemaking (ANPR) on alternative capital in February 2017.

Also in the final regulatory reform report: it maintains the recommendation (in Report 1) that the 50% borrowing limit (and the related waiver provision) for FISCUs should be removed; “state law should govern in this area,” the report notes (reflecting NASCUS’ views). Additionally, as NASCUS has recommended, the agency maintaining its annual one-third review of its regulations.

Final Report, NCUA Regulatory Reform Task Force


Raising the issue of “subordinated debt” (formerly referred to as “alternative capital”) to a higher priority represents a positive nod toward state credit unions, which had advocated for the change.

In its comment letter last year, NASCUS acknowledged that the issues related to alternative capital are complex. However, NASCUS noted, state regulators, NCUA, and many in the credit union system have been studying this issue and developing regulatory frameworks for well over a decade. “To abdicate the progress made on Alternative Capital rulemaking would squander one of the more significant, and long sought, regulatory relief opportunities before NCUA,” NASCUS wrote. The association urged the agency to commence rulemaking to establish supplemental capital for RBC rulemaking.

However, the final regulatory reform report fell short in one area for state credit unions: It is silent on “co-locating” all share insurance rules affecting federally insured, state-chartered credit unions (FISCUs), as also advocated by NASCUS.

“NASCUS appreciates NCUA’s efforts to ease the regulatory burden of credit unions and looks forward to reviewing the final report of the agency’s Regulatory Reform Task Force,” said NASCUS President and CEO Lucy Ito. “We also renew our call for the agency to co-locate and combine all insurance-related rules in one section of the agency’s list of regulations.”

Ito said that, by consolidating insurance rules, NCUA could provide substantial regulatory relief to FISCUs in a manner “consistent with the agency’s regulatory reform efforts to co-locate and combine other rules such as loan maturity and single borrower provisions.” She said co-locating and combining insurance-related rules will also benefit state and federal examiners, “as they will be able to more easily understand which rules apply to FISCUs.”

Lucy Ito statement on NCUA regulatory reform report

NASCUS 2017 comment letter, NCUA Regulatory Reform Agenda 


In other action (for an agenda item added Thursday morning), the board lowered the “normal operating level” of the National Credit Union Share Insurance Fund (NCUSIF) by 1 basis point to 1.38% of reserves to total insured shares – which raises the possibility of an “equity distribution,” or dividend, in 2019, which could be decided as early as February, according to NCUA. The previous level (1.39%) had been set last year. The normal operating level is the equity ratio set by the NCUA Board based on forecasted needs (such as expected losses from credit unions); it can be set by the NCUA Board between 1.20% and 1.50%. The key for credit unions: Funds available beyond the established normal operating level may be distributed to credit unions as a dividend, at the earliest next year – depending on losses from credit unions or other expenses to the fund. The agency said it intends to review the normal operating level annually.

NCUA press release: Board Lowers Share Insurance Fund Normal Operating Level to 1.38 Percent


A test program in which NCUA and state regulators will test approaches for alternating examinations of federally insured, state-chartered credit unions (FISCUs) starts Jan. 1 and will continue for three years, NASCUS and the federal regulator announced this week.

Under the program, three alternating exam program approaches will be tested:

  • Alternating lead— state regulators and NCUA conduct joint examinations of FISCUs, alternating which agency serves as lead each cycle.
  • Alternating with limited participation—NCUA and state regulators alternate conducting examinations with some involvement from the other agency.
  • Alternating— state regulators and NCUA alternate conducting examinations independently.

The test will involve six state regulators and the federal agency with a select group of federally insured, state-chartered credit unions, according to NASCUS and NCUA. The pilot program is based on recommendations of NCUA’s 2016 Exam Flexibility Initiative Report which recommended, among other things, enhanced coordination of exams for FISCUs between state and federal supervisors, and establishment of joint federal-state supervisor working group.

The program will run for one full alternating cycle, approximately three years, NCUA said in a release. “It will help the NCUA and state regulators determine how an alternating examination program could improve coordination and make the best use of federal and state resources,” NCUA said.

The working group was made up of representatives from NASCUS, several state regulators, and NCUA and studies ways to improve supervisory efficiencies, maintain a sound supervisory program, and reduce the burden on federally insured, state-chartered credit unions.

State regulators participating in the test are scheduled to include: California Department of Business Oversight, the Florida Division of Financial Institutions, the New Hampshire Banking Department, the Oklahoma State Banking Department, the South Carolina Office of the Commissioner of Banking, and the Texas Credit Union Department.

“We have found the State Supervisor-NCUA working group to be extremely productive and are thrilled about the upcoming launch of the pilot,” said NASCUS President and CEO Lucy Ito. “Alternating examinations have the potential to reduce supervisory burdens on credit unions, diminish the wear and tear of examiners’ road time, and preserve limited agency budgets. NASCUS applauds the participating state supervisory agencies and NCUA for their willingness to test a new approach that could positively impact both federally insured, state-chartered credit unions and the agencies that supervise them.” 

NASCUS press release announcing test programs

2016 NCUA Exam Flexibility Initiative Report


NCUA scored 67.2 in “employee engagement” for 2018, ranking third out of scores for four federal financial institution regulators, in the Best Places to Work in the Federal Government report, released this week by the non-profit Partnership for Public Service (PPS). The NCUA score was down 1.8 points from its 2017. The score is calculated based on three questions from the Federal Employee Viewpoint Survey, conducted by the federal Office of Personnel Management (OPM) focusing on workplace satisfaction, job satisfaction and organizational satisfaction. The FDIC, by contrast, scored 80.5 (highest among the regulators); the OCC, 77.0. The BCFP scored 51.7 – down 25.2 points from its 2017 score. The Federal Reserve was not ranked.

Best Places to Work in the Federal Government: 2018 rankings


Kathleen (“Kathy”) Kraninger, new director of the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB), was both sworn into office this week and held an inaugural press conference – all in the space of 24 hours. Kraninger, confirmed last week by the Senate on a vote of 50-49 for a five-year term, told the press that she doesn’t intend to be a clone of former Acting Director John (“Mick”) Mulvaney, and that agency’s efforts around data security and data privacy will be “a big focal point” during her tenure “in terms of what the bureau collects, how it’s used, how long it’s stored.” She indicated the bureau’s aggressive data collection efforts have necessitated the focus.

Regarding enforcement, she said she would use the agency’s “full enforcement powers when warranted,” noting that “enforcements are fundamental to the agency’s mission, and we will use them,” she said. “I think, by and large, the regulated industry wants to comply; I do believe that’s true.” But she said the bureau should be providing the entities that it regulates with the information that they need to comply. Regarding the agency’s name (BCFP, a Mulvaney change, or CFPB, which is commonly used), Kraninger was non-committal: “I am definitely going to be briefed on the name… I care more about what the agency does than what it is called,” she said. She also acknowledged awareness of recent reports of the estimated up to $300 million cost of changing the name (to regulated entities), and up to $19 million (for the agency).


Tax exempt entities – including state credit unions – may use “any reasonable method” for determining unrelated business taxable income (UBTI) related to parking and transportation benefits, guidance issued this week by the Treasury Department stated.

However, that guidance – and the provision in tax law that it explains – would become unnecessary if pending legislation in the House becomes law sometime before Congress ends, no later than Jan. 2 (see below).

The guidance outlines how credit unions and other tax-exempt organizations should comply with new UBTI requirements that were contained in last year’s tax-reform legislation (the Tax Cuts and Jobs Act of 2017 (TCJA)). Treasury said the guidance is aimed at helping “taxable employers determine the amount of parking expenses that are no longer tax deductible,” and offered the guidance as “a roadmap for navigating [employers’] responsibilities.”

Treasury stated it also provides estimated tax penalty relief in 2018 to tax-exempt organizations that offer the benefits and were not required to report unrelated business income last filing season.  “Additionally, many tax-exempt organizations do not exceed the $1,000 threshold for paying UBTI and will not be required to report unrelated business income or pay the applicable tax,” the department stated.

Treasury Issues Guidance on Parking Provided by Tax-Exempt Organizations and Other Employers


Legislation introduced this week in the House would eliminate unrelated business income tax (UBIT) on parking and athletic facilities fringe benefits. But action on the bill needs to come quickly: The current Congress must end by Jan. 3.

The bill, H.R. 88, the “Retirement, Savings, and Other Tax Relief Act” contains a number of technical corrections to last year’s tax bill (but it does not address executive compensation). Aside from eliminating the provision on parking fringe benefits, the legislation (according to the Credit Union National Association (CUNA)) would:

  • Under provisions related to “structuring transactions” of the Bank Secrecy Act (BSA), only allow the IRS to pursue the seizure or forfeiture of assets if either the property to be seized was derived from an illegal source or the transactions were structured for the purpose of concealing a violation of a criminal law or regulation other than rules against structuring. Post-seizure procedures are also included. Another provision provides a taxpayer exemption for interest liability if a court returns funds to a taxpayer whose assets were mistakenly seized based on invalidated structuring claims.
  • Require federal tax agencies to consult with financial institutions and submit a report to Congress describing how the IRS can utilize new payment methods and platforms to increase the number of tax refunds that can be paid by electronic funds transfer (EFT) and consider the impact on taxpayers who do not have access to traditional credit union or bank accounts.
  • Mandate electronic filing of the annual returns for certain tax-exempt organizations and make these returns available to the public. The “e-file” requirement would be extended to all tax-exempt organizations required to file statements or returns (such as IRS Form 990s) and would require that the tax agency to make the information filed available to the public in a machine-readable format as soon as possible. Also, IRS would have to provide notice to an organization that fails to file a Form 990 for two consecutive years (under current law, an organization’s tax-exempt status is revoked if it fails to file a Form 990 for three consecutive years).

AROUND THE STATES: Reappointment in TN for Gonzales

Tennessee Commissioner of the Department of Financial Institutions Greg Gonzales will remain in that position under the administration of Governor-Elect Bill Lee (R), who takes office next month. In addition to that job, Gonzales also serves as chairman of the FFIEC’s State Liaison Committee, and on a national task force studying how new technologies are affecting U.S. payment systems.


NASCUS members can expect their 2019 membership dues invoices to be sent electronically this time around, addressed to both the CEO and point of contact (POC). A paper, “hard” copy, will also be sent this time as well, as members (and NASCUS) transition to the electronic means. For future dues cycles, NASCUS members can expect dues invoices electronically. Comments or questions? Please contact NASCUS’ Vice President for Corporate Affairs Doug McGuckin (at, or Vice President Member Relations Alicia Valencia Erb (at Thank you again, and we look forward to hearing from you!

BRIEFLY: Study finds state, local spending will outpace revenue

State and local governments across the nation may be looking at tough financial times over the next 50 years, as a Government Accountability Office (GAO) study released this week said spending among the states will rise faster than revenues collected – largely due to health care costs generally, and Medicaid spending and spending on health benefits for state and local government employees and retirees in particular. “Revenues may be insufficient to sustain the amount of government service currently provided,” the report states.

State and local governments' fiscal outlook: 2018 update

Information Contact:
Patrick Keefe,