Board seeks comment on closing corporate fund in October
Closing the fund in October that stabilized the corporate credit union system – which could result in credit unions receiving between $600 million to $800 million next year in distributions from the fund – was proposed by the NCUA Board Thursday during its regular monthly meeting. Additionally, the board proposed to set the “normal operating level” of the National Credit Union Share Insurance Fund (NCUSIF) at 1.39% — nine basis points higher than the current rate. Comments on both proposals are due to the NCUA Board by Sept. 5.
The agency said on its website that it is proposing to close the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in October – and merge it into the NCUSIF — now that the fund’s purpose has been fulfilled. “Closing the Stabilization Fund at this time would result in a distribution of all assets and liabilities to the Share Insurance Fund as required by law,” NCUA stated. “This distribution would increase the Share Insurance Fund’s net position and result in an increase in the equity ratio. However, given the nature of certain assets and liabilities of the Stabilization Fund, the Share Insurance Fund’s assumption of these assets and liabilities will introduce additional risk of volatility to the Share Insurance Fund’s equity ratio.”
To address that, the NCUA Board is also proposing to raise the normal operating level of the fund to 1.39% of total equity to insured shares. The agency said doing so will help ensure the Share Insurance Fund has sufficient equity to withstand a moderate recession without the equity ratio falling below 1.20%, at which point a premium or fund restoration plan would be required by statute. The current operating level is 1.3%, which was set in 2007; comments are due Sept. 5.
Following the board meeting, NCUA announced it is hosting an industry webinar on Wednesday, Aug. 9, to answer questions about the proposed closure plan; registration opens today (July 21).
MCWATTERS: ‘PRUDENT’ MOVE; METSGER: COMMENTS NEEDED
In a statement he read at the board meeting, NCUA Board Chairman J. Mark McWatters called the plan to close the stabilization fund prudent. “The NCUA Board believes that the remaining obligations of the Corporate System Resolution Program can now be prudently borne by the Share Insurance Fund without inordinate risk, provided additional equity is maintained in the Share Insurance Fund,” McWatters said. “The Stabilization Fund has, accordingly, served its purpose of retaining the resolution costs of the five failed corporate credit unions within the credit union system, at no cost to taxpayers.”
The NCUA Chairman pointed out that, by setting the operating level of the fund at 1.39%, surplus equity in the Share Insurance Fund can be returned to insured credit unions. “Based on current projections, this could result in an estimated distribution to insured credit unions of $600 million to $800 million in 2018,” he said. McWatters also noted that his statement would serve as the text of letters to the chairmen of both the Senate Banking Committee and House Financial Services Committee.
NCUA Board Member Rick Metsger, who joined McWatters in voting to approve the proposal and issue it for comment, pointed out that the agency projects that over the next several years it will distribute dividends of between $2.6 billion and $3 billion to credit unions, and that shareholders of closed corporate credit unions (once the “legacy estates” holding their assets are closed) will receive an additional $1.1 to $1.9 billion in depleted capital. “This means we project returning between 54% and 63% of the special assessments and between 20% and 34% of the depleted capital to credit unions and their members,” he said. “This is an amazing recovery. At the time the Stabilization Fund and the NGN program were established, virtually no one predicted any recovery. And many projected that additional special assessments would be required.”
Both McWatters and Metsger urged credit union system participants to comment on the proposal. “But do not wait until the last day—Sept. 5—to submit your comments,” Metsger said. “Submit your comments as quickly as possible. If we do not have time to fully consider and respond to the comments between Sept. 5 and Sept. 30, merger of the funds could be delayed and credit unions may have to wait until 2019 before receiving a dividend,” he said.
RULES ON SIF DISTRIBUTION, ‘EMERGENCY MERGERS’ PROPOSED
The board also proposed a rule (with comments also due by Sept. 5) for calculating pro-rata shares of Share Insurance Fund equity distribution. According to staff, no changes have been made to the current method in 30 years. The purpose of the proposal, they also said, is to provide credit unions greater transparency regarding the calculation of a federally insured credit union’s proportionate share of a declared equity distribution from the Share Insurance Fund.
However, a key portion of the proposal is that it would prohibit a federally insured credit union that terminates federal share insurance coverage during a particular calendar year from receiving an NCUSIF equity distribution for that calendar year. The purpose, according to NCUA, is to “provide greater fairness to FICUs that remain federally insured.”
In other action at its meeting Thursday, the board:
- Issued a proposed rule on “emergency mergers” that would amend the definition of “in danger of insolvency” in the agency’s chartering and field of membership manual for emergency mergers. McWatters observed that the proposal allows the agency to look into the future with the idea that it’s “better to catch things earlier than later.” Metsger noted that state credit union supervisors have the right to challenge agency actions, but would not lose their due process rights under the proposal, which was issued for a 60-day comment period.
- Heard a mid-year report on its budget, which estimated that the agency would come under its spending plan by $5.8 million by year’s end.
- Listened to a mid-year report on the share insurance fund, which indicated that the equity ratio of the fund, at the end of June, was 1.26% (when factoring in 1% deposit adjustments in September). Also, according to the report, two federally insured credit unions had failed as of mid-year; there were 14 total failures in all of 2016.
AGENCY TO CONSOLIDATE REGIONS; ALBANY, ATLANTA OFFICES TO CLOSE
NCUA will close offices in Albany, N.Y. and Atlanta through a consolidation of its regions from five to three, the agency announced this morning in a press release about restructuring the agency. Additionally, NCUA said that it would eliminate four of the agency’s five leased facilities, and that it plans to eliminate agency offices with overlapping functions and improve functions such as examination reporting, records management, and procurement. NCUA anticipates that a reduction in the agency’s workforce will occur by attrition. Other areas affected by the restructuring include: Creating an “Office of Credit Union Resources and Expansion” by redefining and realigning chartering and field-of-membership, credit union development, grants and loans, and minority depository institutions programs; restructuring the Office of Examination and Insurance into specialized working groups; and realigning the Asset Management and Assistance Center to include changes to the servicing business model and moving to a financial supervisory structure. “The time has come for the NCUA business model to change,” Board Chairman J. Mark McWatters said in a statement. “Positioning the NCUA to meet the changing demands of the credit union system we regulate in a transparent and fully accountable manner while promoting efficiency and effectiveness is essential.”
SUMMARY OFFERS REVIEW OF SRC PROPOSAL
An NCUA-proposed rule that would expand subjects appealable to NCUA’s Supervisory Review Committee (SRC) — and provides credit unions with an option for additional review — is summarized by NASCUS (with comments due Aug. 7). The summary points out that the proposal has four primary objectives: expand the number of material supervisory determinations appealable to the agency’s SRC; create an optional intermediate level of review before an appeal is brought to the SRC; change the nature and composition of the SRC; and provide for an optional appeal to the NCUA Board. The proposal was issued by the NCUA Board at its May meeting. Then, the board said the intent of the proposal is to codify the process for appealing material supervisory determinations to the NCUA SRC – with the aim of being more consistent with the practices now used by other federal banking agencies.
CFPB RAISES HOME EQUITY LOAN REPORTING THRESHOLD
Credit unions and banks with fewer than 500 home equity loans annually would not be required to report the loans to the Consumer Financial Protection Bureau (CFPB) under a proposal issued late last week by the agency. CFPB rules now in place (adopted in 2015) will require credit unions and banks fewer than 100 equity loans annually to start the reporting at the beginning of next year. Under the proposed rule on mortgage data rule reporting, the reporting threshold would rise to 500 for calendar years 2018-19; after that point, CFPB said it intends to consider whether to make the higher threshold permanent (or not).
CFPB said in a statement that it estimates that the temporary 500-loan threshold would still capture about three-quarters of the home-equity lending market, down from about 88 percent at the 100-loan threshold. “We need to keep track of the responsible use of these loans for consumers,” said CFPB Director Richard Cordray in a statement. “But after hearing from community banks and credit unions we want to reconsider whether that goal can be achieved with a higher reporting threshold.” Cordray also pointed out that home-equity lines of credit worsened the foreclosure crisis that swept the country in 2008 and 2009. In its statement, CFPB asserted that overleverage and defaults due to home-equity credit lines contributed to the foreclosure crises in the late 2000s. “However, this type of lending was not visible in the HMDA data or in any other publicly available data source collected at the time,” CFPB stated.
To eliminate the “blind spot,” CFPB stated, the 2015 rule requires certain lenders to collect, report, and disclose information about their open-end lending as part of their HMDA data. The agency stated that it limited the reporting (which it acknowledged represents a new and, in some cases, significant compliance burden for smaller institutions) to those institutions making more than 100 or more home-equity loans annually.
ARBITRATION RULE SPARKS REGULATOR SPAT, CONGRESSIONAL REVIEW
The CFPB’s new arbitration rule – which bans mandatory arbitration clauses in consumer financial products blocking consumers from joining in class action suites to sue for alleged wrongdoing – takes effect Sept. 18, based on the regulation’s publication this week in the Federal Register. The rule, which will apply to contracts entered into after March 19, 2018 (180 days after the effective date) has already earned its share of criticism from industry groups and members of Congress. Additionally, this week the rule spawned an eruption of sharp words between acting Comptroller of the Currency Keith Noreika and CFPB Director Richard Cordray.
The two swapped letters, with Noreika asking the CFPB leader to delay the rule, stating that OCC staff had expressed safety and soundness concerns arising from the rule’s potential impact on banks and their customers. Noreika said he wanted the rule’s publication to be delayed until OCC had a chance “to analyze the CFPB data so that I am able to fulfill my safety and soundness obligations.” Cordray responded that, during the comment period, no one from OCC raised a safety and soundness issue – and, he noted, Noreika himself had not raised the issue in conversations with Cordray. “I continue to fail to see any plausible basis for your claim that the arbitration rule could somehow affect the safety and soundness of the banking system,” Cordray wrote to Noreika, calling concerns that class-action lawsuits threaten bank safety and soundness “plainly frivolous.” (Other financial regulators may overturn CFPB regulations, through the Financial Stability Oversight Council (FSOC), if two-thirds of the council finds the rules threaten financial institution safety and soundness.) Cordray, in his response to Noreika, asserted that Noreika’s claims failed to satisfy statutory requirements that would trigger an FSOC review of the rule.
Meanwhile, in Congress, efforts to challenge the rule have begun: Sen. Tom Cotton (R-Ark.) began the process of using the Congressional Review Act (CRA) to nullify the rule. The CRA allows a majority of the House and Senate to scrap a federal rule within 60 legislative days of being submitted to Congress or published in the Register.
BILL GIVING CONGRESS CONTROL OF NCUA BUDGET MAY SEE CHANGES
A spending bill which would bring the NCUA budget into the congressional appropriations process may yet see some changes before it hits the House floor for a vote. And there’s time to make changes: House leaders this week, after counting votes, determined that the bill (and most other spending bills) doesn’t yet have the support needed to pass solely on votes of the majority Republican party – meaning the bill likely won’t be voted on until early September, after the House recess in August. In the meantime: the Credit Union National Association (CUNA) reported this week that talks are continuing among House leadership and Appropriations Committee members about altering the spending bill (the financial services and general government appropriations package, one of 12 spending bills the House must approve before Sept. 30) to assure that Congress has more oversight over NCUA, but also to maintain the agency’s and the insurance fund’s independence. According to CUNA, the differences between federal credit union and bank regulation (and insurance funds), are key parts of the discussion.
DENNIS DOLLAR, SPEAKERS LINE UP FOR 2017 SUMMIT
Former NCUA Board Chairman Dennis Dollar, current NCUA Board Member Rick Metsger and cybersecurity expert Jim Stickley are all on the agenda for the 2017 NASCUS State System Summit, Aug. 29-Sept. 1 in San Diego. Dollar, who served as chairman of the federal credit union regular board from 2001-4 (after having previously served as a board member since 1997), is now principal partner of Dollar Associates, LLC, a consulting group focusing on credit unions and their organizations; he is also a former credit union CEO and state legislator (in Mississippi). Widely regarded for his credit union and public policy insights, Dollar is featured in a session on the “Evolving FOM” for credit unions, designed to explore issues related FOM and what it will look like in the future. The NASCUS State System Summit is a unique conference where credit union regulators and practitioners come together for dialog and exchange. Issues, best practices, emerging trends and – as is the focus in this year’s event – the future of certain aspects of the credit union system. Hotel cutoff date is Aug. 8 to obtain the special Summit rate. Other key topics at the event include fintech, the future of the corporate system, cybersecurity, outlook for CFPB – and more.
PIERRE JAY NOMINATIONS DUE BY NEXT FRIDAY (JULY 28)
Deadline for submitting 2017 Pierre Jay Award nominations is next Friday (July 28). The award, established by NASCUS 20 years ago, honors outstanding individual service, leadership and commitment to the state credit union system. Eligibility for nomination to this year’s award is open to anyone, program or organization making a significant contribution to the state credit union system over the last year (or years). However, only NASCUS members are eligible to submit a nomination for consideration. The award will be conferred late next month at the 2017 NASCUS State System Summit in San Diego (at the Westin Gaslamp Quarter Hotel. For more information – including the on-line nomination form, additional nomination guidelines and list of past winners – see the website link below.
NEW MEMBER RELATIONS VP BRINGS ‘RICH INSIGHTS’ TO NASCUS
Alicia Valencia Erb — with nearly two decades of experience in working with cooperative and credit union leaders, state trade associations and national credit union organizations — is the new vice president of member relations for NASCUS. In the position (a new one for NASCUS) she is responsible for retaining and augmenting the association’s membership base, as well as reaching out to the state credit union system to demonstrate the value of NASCUS membership. Most recently the engagement strategist at the Credit Union National Association (CUNA) in Washington, D.C. – the nation’s largest and oldest national credit union trade group — Erb developed and implemented strategies to strengthen and deepen association member engagement, retention, and affiliation. “Alicia has a wealth of experience and a rich insights for working with the credit union system at all levels,” said NASCUS President and CEO Lucy Ito. “She has the skill sets to help NASCUS accelerate its already expanding membership, which will help the state credit union system become stronger and ever more effective in serving both our credit union and regulator members.”
BRIEFLY: Key nominations proceed; DHS offers CU
Nominations of key federal financial institution regulators for the Trump administration are moving forward, with action this week and more set for next. This week, Chris Campbell, the nominee for assistant Treasury secretary for financial institutions (a post that often acts as Treasury liaison to NCUA) appeared before a confirmation hearing in the Senate Banking Committee. On Thursday, Federal Reserve Board Vice Chair nominee Randy Quarles, and permanent Comptroller of the Currency nominee Joseph Otting, will appear before the committee for a confirmation hearing … raising awareness of cyber risk management, cyber related planning, and other issues related to cyber incident prevention, protection, and response is the goal of an Aug. 16 (noon-4 p.m.) “Virtual Tabletop Exercise” sponsored for credit unions and their related organizations by the Department of Homeland Security. For more information, including locations and registration, see the DHS document at the link.
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974
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