Jan. 17, 2020 NASCUS Report

THIS WEEK: NCUA board to consider subordinated debt proposal; Ito: Proposal deserves ‘due deliberation’; Summary looks at supervisory priorities; Bills address regulator cybersecurity, oversight; Agency seeks buyer for taxi medallion loans; Bureau wants council members; CA eyes its own CFPB; TRANSITIONS: Long-time CA regulator retires; Agenda set for cannabis/hemp confab; BRIEFLY: Pair tapped for Fed seats

Agency board to consider
subordinated debt proposal

A proposed rule to allow some federally insured credit unions (FICUs) to count subordinated debt as capital for risk-based net worth purposes will be considered by the NCUA Board at its meeting next week, the agency said this week in posting the board agenda.

The agency has been working on the proposal for some time. In September, NCUA Board Chairman Rodney Hood indicated that the proposal would be taken up by the end of last year. One likely reason that didn’t happen is because of the relatively complicated nature of the proposal. In December, Hood told the Senate Banking Committee that “this has proven to be a very complex issue,” and indicated that the agency wanted to get the proposal right “before giving it to stakeholders for comment.”

NCUA Board Member J. Mark McWatters, during the board’s December meeting and anticipating the proposal’s release, called it “a good rule, a complex rule” and said the agency would need “a lot of feedback on it.”

NASCUS has long held that subordinated debt should be a part of the risk-based capital framework because it encourages well-managed credit unions to attract additional loss-absorbing forms of capital that they would otherwise forego. NASCUS President and CEO Lucy has noted that “the point of risk-based capital rulemaking is to increase the capital buffer standing before the share insurance fund and subordinated debt is wholly consistent with that goal.”

Also at next week’s meeting, the board will:

  • Consider a proposed rule on credit union combination transactions (under part 708a, subpart D, of NCUA regulations, which governs the conversion of an FICU into a mutual savings bank and the merger of an FICU into a bank).
  • Review and set the federal credit union (FCU) loan interest rate ceiling;
  • Discuss the agency’s 2020 performance plan; and
  • Hear a briefing on an inflation adjustment for the agency’s civil money penalties (which will increase by a multiplier of 1.01764 from current levels; NCUA administers 16 CMPs under its regulations).

NCUA Board agenda, January 2020

NASCUS’ Ito: Sub debt proposal deserves ‘due deliberation’

In a statement following the posting of the NCUA Board’s agenda, NASCUS President and CEO said the state system is pleased that the agency is moving forward on the subordinated debt proposal, but also urged the agency to provide plenty of time for comments on what will likelyo be a very complex issue.

“NASCUS has long been a proponent of subordinated debt as a tool for well-managed credit unions to meet capital requirements and to add another line of defense to protect the National Credit Union Share Insurance Fund,” she said.

However, she noted that, given the complexity and importance of the issue, the NCUA Board should consider an extended comment period of 120 days. “An extended period would give NCUA appropriate time to consult with state regulators and all stakeholders adequate time to review and consider the possible impacts of what promises to be complex and historically notable rule-making that may have ramifications for other rules including Prompt Corrective Action, Risk-Based Capital, and investments authority—just to name a few,” she said. “Such a complex and critical rule deserves due deliberation.”

Lucy Ito statement on NCUA subordinated debt proposal

Summary outlines supervisory priorities for NCUA

An outline of NCUA’s letter on supervisory priorities for 2020 – as well as additional information on the agency’s actions in introducing its new examination platform – is contained in the latest NASCUS summary of NCUA Letters to Credit Unions (LTCU).

The NASCUS summary is available to members only.

Last week, the agency released its first LTCU (20-CU-01) of the year delineating its supervisory issues for the year. Among the priorities: Bank Secrecy Act and anti-money-laundering compliance; consumer financial protection; cybersecurity; credit and liquidity risks; current expected credit losses (CECL) accounting standard, and more. 

NCUA also noted in the letter that its new examination platform, the Modern Examination and Risk Identification Tool (MERIT) will be released to all examination staff in the second half of 2020. Credit unions will also be users of MERIT, NCUA said, and will have the ability to perform certain activities in the tool, such as transferring documents and files needed for the examination securely; providing status updates and requesting due date changes on corrective actions; and accessing completed examination reports securely.

NASCUS Summary: NCUA 2020 Supervisory Priorities (members only)

Report: NCUA seeks buyer for taxi medallion loans

A sale of all of the thousands of loans for taxi medallions is planned by NCUA, according to press reports this week. The agency had no comment on the reports. According to Crain’s New York, the agency wants any interested bidder to purchase all of the loans made for the medallions and now held by NCUA. The loans (and the medallions) were assumed by NCUA when the agency liquidated credit unions that loaned the money to taxi drivers and others to purchase the medallions. The amount of the loans has been estimated at $1.5 billion. There are approximately 3,500 medallions underwritten by the loans.

The estimated cost to the National Credit Union Share Insurance Fund (NCUSIF) for liquidating the credit unions – which included Melrose, Montauk and LOMTO (all in New York), and all of which had substantial loans to taxi medallion owners – was more than $700 million.

Bills attempt to bolster cybersecurity, oversight

Legislation intended to strengthen cybersecurity at NCUA and the other federal financial institution regulatory agencies – as well as the institutions they regulate, as well as third-party service providers — and to bolster congressional oversight of the regulators, was adopted this week by the U.S. House of Representatives.

H.R. 4458, the Cybersecurity and Financial System Resilience Act of 2019 (introduced by Rep. Patrick McHenry (R-N.C.) and adopted on voice vote) would require annual reports that provide detailed explanations of measures the regulators have taken to strengthen their cybersecurity. The reports would be submitted to the Senate and House committees with oversight of the agencies The legislation also requires the agencies to report on measures taken to strengthen cybersecurity for “the supervision and regulation of financial institutions and, where applicable, third-party service providers,” according to the bill’s summary.

NASCUS has supported NCUA obtaining examination authority over technology service providers (TSPs) that provide services to federally insured credit unions, provided that any such authority requires the agency to rely on state examinations of such service providers where such authority exists at the state level. The association also backs efforts to strengthen state regulatory examination and supervision of third parties providing services to state-chartered credit institutions.

Also passed this week by the House (and also by voice vote) was H.R. 4841, the Prudential Regulators Oversight Act (introduced by Rep. Dean Phillips (D-Minn.)), which requires the NCUA and the other federal prudential banking regulators to provide annual testimony to the House Financial Services Committee, along with semiannual reports on their supervisory and regulatory activities.

Bureau taking applications for council membership

Applications for membership on CFPB’s credit union, consumer, community bank, and academic research councils are being taken beginning this week and running through Feb. 27, the bureau said this week. The councils advise bureau Director Kathleen Kraninger on issues under the bureau’s purview. The panels are the Credit Union Advisory Council (CUAC), Consumer Advisory Board (CAB), Community Bank Advisory Council (CBAC), and Academic Research Council (ARC). The CAB is the only panel required by statute; the other three were formed under the director’s authority to establish discretionary committees.

Membership of the advisory committees includes representatives of consumers, diverse communities, the financial services industry, academics, and economists, and appointments to the committees are “generally” for two years, the bureau stated in its official notice of the application period. “However, the Director may amend the respective committee charters from time to time during the charter terms, as the Director deems necessary to accomplish the purpose of the committees,” it adds.

The bureau said it expects to announce the selection of new members in late-summer 2020; the application period ends at 11:59 p.m. ET on Feb. 27.

Advisory Committees Solicitation of Applications for Membership

CA looks to model agency after CFPB

Change is coming to the California Department of Business Oversight (DBO) under a plan advanced by the state’s governor and detailed this week. According to the January issue of the department’s Monthly Bulletin, Gov. Gavin Newsom (D) has proposed a $44 million plan to modernize and revamp DBO with added staff and authority. The agency would be renamed the “Department of Financial Protection and Innovation” under the plan.

According to the publication, the action is intended to “cement” the agency’s position as a premier financial regulator “and national model for consumer protection.” Proposed legislation making the change, the California Consumer Financial Protection Law, the publication stated, would give the DBO “expanded enforcement powers to protect California consumers from the regulatory retreat by federal agencies, most notably the Consumer Financial Protection Bureau (CFPB).” The publication noted that the new law would be modeled on the CFPB, with a focus on promoting innovation, clarifying regulatory hurdles for emerging products, and increasing education and outreach for vulnerable groups.

TRANSITIONS: Also in CA, Cameron retires

Also this week: the DBO announced the retirement of long-time state servant Scott D. Cameron, who most recently served as senior deputy commissioner of the agency. During his 35-year career, Cameron served as an examiner, financial institutions supervisor, assistant deputy commissioner, Northern California regional deputy commissioner and deputy commissioner/chief examiner. He was named to his most recent post in 2015.

Agenda set for hemp, cannabis banking conference

The agenda, including session topic areas, for the June 17-18 NASCUS symposium on hemp and cannabis banking (in Chicago) has been posted and registration is open.

The NASCUS conference on banking for the fast developing, and growing, cannabis and hemp industries – inaugurated in 2019 as the first of its kind for the credit union system – focuses on the policies and procedures for credit unions to consider as they weigh banking of their members’ hemp and state-legalized cannabis businesses.

And for those credit unions that decide not to offer banking services to those businesses, the NASCUS conference will also outline the many decisions credit unions have to consider regarding their own policies.

Held at the Hilton Chicago (on Michigan Avenue, across from Grant Park), topic areas for the two-day conference include:

  • The current state of marijuana legalization and marijuana banking;
  • The cannabis business community today;
  • A case for banking marijuana;
  • Conducting an examination of a marijuana banking program;
  • The current state of hemp banking;
  • NCUA and banking hemp: next steps;
  • Enhanced due diligence for banking hemp;
  • Implementing a state hemp program

Cost for the program is $650 for NASCUS members, $900 for non-members. For more information, including registration, see the NASCUS website.

Hemp & Cannabis Banking Symposium

BRIEFLY: Pair tapped for seats on Fed Board

Judy Shelton and Christopher Waller were given the go-ahead by the White House late Thursday for seats on the Federal Reserve Board. President Donald Trump formally announced his “intention to nominate” the two to the board of the central bank, to fill two open seats on the seven-member panel. Shelton, a former executive director of the European Bank for Reconstruction and Development, would fill the remainder of a 14-year term expiring Jan. 31, 2024 if confirmed. Waller, executive vice president and director of research at the Federal Reserve Bank of St. Louis, would fill the remainder of a 14-year term also expiring Jan. 31, 2024.

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