(Nov. 13, 2020)Despite the financial impact of the coronavirus crisis, federally insured credit unions performed well and remain well capitalized – although there are still challenges ahead, NCUA Board Chairman Hood told Senate and House committees this week.
Hood also made a legislative request: that the authority in the Coronavirus Aid, Relief, and Economic Security (CARES) Act given to NCUA to respond to the pandemic – particularly that providing expanded flexibility and borrowing authority to the agency’s Central Liquidity Facility (CLF) – should be extended to the length of the pandemic. The authority under the CARES Act is now set to expire at year’s end.
In reporting on the state of credit unions, Hood said they were well capitalized at the start of the pandemic, with high levels of net worth and ample liquidity. He noted that federally insured credit unions (FICUs) increased their net worth by $11.6 billion, or 6.8%, over the year ending June 2020, to $182.9 billion. He said asset growth led to a decline In the aggregate net worth ratio – net worth as a percentage of assets – from 11.27% to 10.46%. “Still, the credit union system remains well capitalized through June 2020,” Hood said.
But he also reported that the effects of the economic downturn will affect credit union performance through year’s end and into 2021. “System-wide delinquency rates, which remained low through the second quarter, could begin to rise as forbearance programs end, particularly given the current high level of unemployment. Interest rates across the maturity spectrum have fallen to historically low levels,” he said. “A prolonged period of low interest rates also poses risks, particularly to credit unions that rely primarily on investment income.”
NCUA is actively monitoring economic conditions and assessing these and other risks to credit unions and their members, he said.
In seeking extended authority for the CLF, Hood noted a number of changes the CARES Act made for the CLF when the law was enacted last March (including higher borrowing authority, relaxed membership for corporate CUs, more clarity about what borrowed funds can be used for). He indicated credit unions have responded well to the changes, with new memberships adding $989.8 million in additional capital stock (since April), borrowing authority increased by $21.7 billion to $32.2 billion, and 80% of all federally insured credit unions (4,145 in total) now having access to the facility.
Securing the extension of the authorities, Hood said, would “provide regulatory certainty to credit unions. Having a reinforced CLF will also ensure the credit union system can continue to support its members and communities should the need for emergency liquidity arise.”
NASCUS commented in favor of changes to the CLF in a comment letter on an interim final rule the association filed in June, implementing provisions of the CARES Act.
NASCUS Comments on Interim Final Rule: CLF (RIN 3133-AF18)
(Nov. 13, 2020) Vickie Hurt would lead the Kansas Department of Credit Unions under a nomination announced this week by Gov. Laura Kelly (D) to replace retiring Administrator Jerel Wright. He has announced he plans to retire effective Nov. 28. Hurt’s nomination is subject to approval by the Kansas senate; a hearing has been set for next week (Tuesday) before the Confirmations Oversight Committee. Wright is ending his second stint as KDCU administrator, which began in September 2014; he previously served in the position from 1997-2005 … Meanwhile, in Alaska, Chief Examiner Tracy Reno has been named interim director of the Division of Banking and Securities to succeed Director Patrice Walsh, who retired in late October … And, after 21 years, Doug Lacy-Roberts has announced his retirement from the division of credit unions at the Washington Department of Financial Institutions where he most recently served as program manager, chief of specialty examinations and enforcement. Prior to his career at DFI, he was an FDIC examiner for 7 years. Best wishes from NASCUS to all three retiring employees.
(Nov. 13, 2020) Last week’s election results – in which Democrat (and former vice president) Joseph R. Biden claimed more electoral votes than Republican (and incumbent) President Donald Trump, as well as more than 5 million more actual votes — will have an impact on federal regulation of credit unions, likely beginning with who sits in the top regulators’ seats.
For NCUA, the result could mean a change who leads the agency. The chairman of the NCUA Board is designated by the president (not confirmed by the Senate if already sitting on the board), and does not serve a set term in that role, other than their term as a member of the board. Current credit union regulator board Chairman Rodney Hood (appointed by Trump) could be displaced by Biden in favor of a Democrat, as early as January following inauguration. Hood’s term on the board runs to August 2023. Board members may not succeed themselves.
The only Democrat currently on the board is Todd Harper, whose own term ends in April. Biden could name Harper board chairman, and then nominate another Democrat to take his place sometime after April. Harper could remain on the board until his successor is confirmed by the Senate.
And there may be more opportunities for the new president. NCUA Board Member J. Mark McWatters (a Republican appointee) is serving in a holdover capacity (since his term ended in August 2019) until the Trump nominee for his seat, Kyle Hauptman, is confirmed by the Senate. Hauptman’s nomination is currently pending before the Senate, after a split vote by the Senate Banking Committee to recommend confirmation. (Senate Democrats, on a voice vote, voted no.)
But a vote on Hauptman’s nomination has not yet been scheduled by the Senate. If the Senate fails to act before the current session ends in early January (and the current Congress with it), his nomination will come to an end – and Biden will have another seat to fill on the board, likely with a Democrat. (However, there is still plenty of time between now and Jan. 2 for the Senate to take up and act on Hauptman’s nomination.)
Meanwhile, the CFPB director’s job, now held by Kathleen Kraninger, will be up for change under a Biden administration – thanks to a Supreme Court decision just this year which ruled the director of the agency holds the job “at will” of the president, and is not only subject to “for-cause” firing, despite the five-year term the director fills once confirmed. Kraninger’s term runs to 2023.
Democrats in both the House and Senate have been roundly critical of Kraninger’s performance as director, and will likely argue that the new administration should make a change.
(Nov. 13, 2020) An “agency review team” for federal financial regulators, including NCUA, to assist in the transition from the administration of President Donald Trump to that of President-elect Joe Biden will be led by a former leader of a commission that oversees the commodities markets, Biden’s transition office said this week.
The team includes no credit union representatives, at least so far.
Gary Gensler, former chairman of the Commodity Futures Trading Commission (CFTC), will lead the “Federal Reserve, Banking and Securities Regulators” agency review team. The teams, according to the description provided by the transition office of Biden and Vice President-Elect Kamala Harris, are responsible for understanding the operations of each agency, ensuring a smooth transfer of power, and preparing Biden, Harris and their cabinet “to hit the ground running on Day One.”
The group headed by Gensler (most recently a senior advisor and lecturer at the Massachusetts Institute of Technology (MIT)) will cover NCUA, the Federal Reserve, FDIC, CFTC, and the Securities and Exchange Commission (SEC). (The OCC will be covered by a separate team looking at the Treasury Department.) The 14-member team does not include any members whose most recent employer is a credit union, credit union regulator or credit union-related group. Although that’s the case now, that could change in coming weeks as the teams begin setting up subgroups to look at specific agencies.
Another key agency review team announced this week: One looking at the CFPB, which will be headed by its former (and short-tenured) Deputy Director Leandra English. Most recently with the New York State Department of Financial Services as a special policy advisor (since January 2020), English will lead an eight-member team. There are no credit union representatives in that group. Bill Bynum of Hope Enterprises Corp. (and CEO of Hope FCU in Jackson, Miss.) is also a member of the team.
English was named deputy director of the bureau in 2017 by outgoing Director Richard Cordray; she had been chief of staff at the agency. In naming English, Cordray was effectively naming his successor since the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) states that the deputy succeeds the director if that individual resigns or the position is vacant. Cordray resigned his office the same day (but after) he named English deputy director; she expected to become director.
However, later that day, Trump announced that he had appointed then-Office of Management and Budget (OMB) Director John (“Mick”) Mulvaney to the additional job of acting director of the consumer bureau. A federal judge days later ruled that Mulvaney’s appointment was proper; a subsequent suit brought by English to overturn that ruling was unsuccessful. She left the agency in July.
LINK:
Biden-Harris agency review teams
(Nov. 13, 2020) The NCUA Board has scheduled a 2020 budget update and reprogramming, as well as an item on the agency’s rules and regulations, “Capitalization of Interest” as agenda items for its Nov. 19 regular monthly meeting. Other items on the agenda for the meeting, set to begin at 10 a.m. ET and to be streamed live via the Internet, are board briefings on the quarterly performance of the National Credit Union Share Insurance Fund (NCUSIF) and on the state of credit union diversity, including the 2019 Credit Union Diversity Self-Assessment … The FL Office of Financial Regulation recently approved Nov. 1 the conversion of Panhandle FCU of Panama City to a state charter; the institution holds more than $263 million in assets … Controversial Federal Reserve Board NomineeJudy Shelton – criticized by some for her past views on reinstituting the gold standard, questioning the effectiveness of federal deposit insurance, and the Fed’s independence from political influence – will receive a confirmation vote as early as next week. Sen. Lisa Murkowski (R-Alaska) said Thursday she would vote for Shelton, meaning there are now enough votes among Republicans to approve her confirmation; all Democrats have vowed to reject her nomination. A vote for fellow Fed Board Nominee Chris Waller has not been scheduled, although his nomination has received little if any opposition. There is no word, yet, on a vote for NCUA Board Nominee Kyle Hauptman … Actual payment “furnishing” (or information on payments sent to consumer credit reporting agencies from financial institutions) grew steadily for mortgage, auto and student loans between 2012 and 2020, according to a report issued Thursday by the CFPB, reaching more than 90% of credit accounts. On the other hand, over the same period, the bureau said payment furnishing for credit card and retail revolving loan accounts fell to 40% of accounts. The bureau said the information in its report is used to determine whether consumers are approved for credit and the interest rates and terms consumers receive. “Financial institutions’ decisions regarding which data elements within a consumer’s credit account to furnish to consumer reporting agencies have important implications for which factors lenders can use to evaluate potential and existing borrowers,” the report states. It added that “describing trends in furnishing practices can help deepen policymakers’ and market participants’ understanding of the consumer reporting system’s key role in consumer access to credit, especially in the wake of the COVID-19 pandemic when credit standards have tightened and there has been increased strain on consumer finances.”
LINK:
New report explores the prevalence of actual payment information in consumer credit reporting
(Nov. 13, 2020) NCUA’s new, revised rule on corporate credit unions – addressing at least five key areas in current rules, including permitting the institutions to make a minimal investment in a credit union service organization (CUSO) – takes effect Dec. 14, after publication of the final rule Thursday (Nov. 12) in the Federal Register.
Adopted at the agency board’s Oct. 15 meeting, the revised corporate regulation is generally aimed at clarifying a number of provisions already in agency rules. NASCUS largely supported the revisions when proposed, although the association made some suggestions for improving or refining the regulation.
Among its key provisions, the rule:
- permits (as noted) a corporate credit union to make a minimal investment in a credit union service organization (CUSO) without the service organization being subjected to heightened agency oversight.
- expands the categories of senior staff positions at member credit unions eligible to serve on a corporate credit union’s board.
- removes the “experience and independence” requirement for a corporate CU’s enterprise risk management (ERM) expert.
- clarifies the definition of a collateralized debt obligation.
- simplifies the requirement for net interest income modeling.
Given that six of 11 corporate credit unions are state chartered, the rule has the potential for an important impact on the state credit union system. As NASCUS President and CEO Lucy Ito noted last month when the rule was finalized, provisions such as enabling corporate CUs to make minimal investments in a CUSO without triggering a “corporate CUSO” classification should enable the credit union system to stay abreast of broader fintech developments.
Unlike the proposal, the final rule does not include provisions addressing subordinated debt at credit unions. Instead, prior to issuing the final rule, NCUA decided to remove those provisions from the final, noting that they would be addressed in a later final rule on subordinated debt. A proposal was issued in January on subordinated debt; the comment period ended in July.
LINK:
Final rule: Corporate credit unions
(Nov. 13, 2020) NASCUS has posted a new summary of a proposal by federal financial institution regulators – including NCUA and CFPB – aimed at clarifying and codifying the role of supervisory guidance. The summary is available to members only.
Voting unanimously at a rare second monthly board meeting Oct. 28, the NCUA Board agreed to join the interagency proposal on the role of supervisory guidance issued by the agencies. Under the proposal, the meaning of “supervisory guidance” would be clarified as meaning, essentially, it doesn’t have the force of law.
If finalized, the proposal would codify an interagency statement issued by all of the agencies in September 2018. That statement was intended to make clear that, unlike a statute or regulation, supervisory guidance is not the same as statute or regulation. “Supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement actions based on supervisory guidance,” the 2018 statement read.
But some in the financial services industry (most vocally, banks) wanted more than a statement. They developed a petition to the federal banking agencies and CFPB requesting that the statement be adopted by the agencies in the form of the rule. NCUA was not an initial target of the petition but, since the credit union regulator signed on to the original statement, it was obligated to consider signing on to the proposed rule.
When the board considered the proposal two weeks ago, staff asserted that it would not impose a burden on credit unions. That’s at least partially because, they said, the agency has followed the intent of the proposal for at least the last seven years. Staff pointed out that NCUA has, at least since 2013, tied all “documents of resolution” for credit unions to specific statutory and regulatory citations – a practice, the agency staff (and board members) vowed would not change under the proposed rule.
Comments on the proposal are due Jan. 4, following a 60-day comment period.
LINK:
Summary — Interagency Proposed Rule re: Role of Supervisory Guidance