(July 23, 2021) The NASCUS 2021 State System Summit (S3) is now less than a month away – Aug. 17-18 – offering two days of learning and networking with credit union system leaders, colleagues and friends.
New for this year’s event – which is presented in virtual format – are:
- An attendee hub (for registered participants in S3), via NASCUS.org, that provides access to presentation downloads and on-demand videos of each session.
- “Gamification,” in which attendees earn points just by visiting the hub and interacting with the website. The top 10 participants with the greatest number of points win a prize.
The NASCUS 2021 S3, the flagship event for the state credit union system, is a unique event which brings together credit union regulators and practitioners for a mutual exchange of dialog, problem-solving, and shared resources within the system. Key presentations at this year’s event include those on employment trends, real estate developments, economic updates, and the state of the state system.
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Agenda, registration for NASCUS 2021 State System Summit (S3)
(July 23, 2021) NASCUS President and CEO Lucy Ito sat in on two panels this week for virtual presentations associated with the World Council of Credit Unions (WOCCU) virtual annual conference.
In the first, she joined Monday in the Global Women’s Leadership Network (GWLN), which describes its mission as aiming to “provide women with the opportunity and resources to make a measurable difference in the lives of each other, in the lives of credit union members and in their communities.” Others on the panel with her (who discussed leadership and key issues facing women in the credit union system) were Teresa Freeborn, president of Kinecta FCU; Martha Majors, president and CEO of USEagle FCU, and Lisa Ginter, CEO of CommunityAmerica CU.
In the second, Ito joined WOCCU Assistant General Counsel Panya Monford, and Sophie Romana of Strategic Impact Advisors, in a Tuesday session on how proportionality by national level regulators supports financial inclusion, and providing real life scenarios that dictate the need to improve financial service efforts to serve the underserved.
(July 23, 2021) Comments are due to federal banking regulators Sept. 17 about proposed guidance on third-party risk management at banks – including that related to deals with financial technology (fintech) firms – issued by the federal banking agencies.
The joint announcement and guidance came as a surprise after the three agencies had historically issued separate rule-making on third party risk.
Under the proposal, announced July 13 and based on 2013 guidance issued by the OCC, financial institutions are offered a framework for what the agencies say is “based on sound risk management principles for banking organizations to consider in developing risk management practices for all stages in the life cycle of third-party relationships that takes into account the level of risk, complexity, and size of the banking organization and the nature of the third-party relationship.”
The guidance also underscores that banks that outsource services or operational functions remain responsible for ensuring those activities are conducted “in a safe and sound manner and in compliance with all applicable laws and regulations, including consumer protection laws.”
The agencies said the proposed guidance also responds to industry feedback requesting alignment among the agencies with respect to third-party risk management guidance.
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(July 23, 2021) New regulations on anti-redlining rules will be rescinded, and federal banking agencies vowed to work together to develop a new proposal, the agencies announced this week.
On Tuesday, the OCC announced that it would propose rescinding its Community Reinvestment Act (CRA) rule adopted in 2020. Acting Comptroller Michael J. Hsu said a review he started shortly after taking office in early May led to his decision to make the proposal. However, he indicated strengthening and modernizing the CRA rules – which implement 1970s legislation designed to thwart redlining in lending by banks – was necessary to ensure fairness during “persistent and rising inequality and changes in banking.”
The June 2020 rule was finalized by the OCC alone; neither the Federal Reserve Board nor the FDIC was party to that action, and the final OCC rule received a lackluster response from the banking industry. Meanwhile, the Fed issued its own advance notice of proposed rulemaking (ANPR) on modernizing CRA rules in September 2020, with a 120-day comment period. The notice was issued on a 5-0 vote by the Fed board.
This week, following OCC’s action, the OCC, Fed and FDIC issued a joint statement that they want to work together to jointly strengthen CRA rules. “Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods,” the agencies stated.
LINKS:
Interagency statement on Community Reinvestment Act joint agency action
OCC Statement on Rescinding its 2020 Community Reinvestment Act Rule
(July 23, 2021) NASCUS President and CEO Lucy Ito said the state system welcomes the proposal and that it will carefully analyze it and offer comments. “NASCUS has encouraged NCUA to consider adopting an off-ramp to the RBC rule that has an effect that is similar to the banking agencies’ CBLR,” she said.
The state system had strongly urged the agency to move forward on the CCULR, rather than adopt a proposed risk-based leverage ratio (RBLR) requirement. Ito said NASCUS was pleased the agency dropped the latter approach. “The RBLR approach may have created a perceived conflict with the new subordinated debt rule, by requiring the agency to modify the rule,” she said. “That could have put a damper on credit unions’ attempts to apply subordinated debt toward their capital calculations.”
But the proposed CCULR, she noted, would not require that change – and allow credit unions moving forward on subordinated debt to continue their plans. “The CCULR proposal allows both the 2015 RBC rule and subordinated debt rules to go into effect,” she said. “The optional nature of the CCULR would also permit parallel development of subordinated debt with the simultaneous implementation of the existing 2015 RBC rules, providing credit unions with the choice to opt in and out of the CCULR in the future.”
(July 23, 2021) In other action Thursday, the NCUA Board issued a request for information on digital assets and related technologies, with a particular eye on current and potential uses for credit unions and the risks associated with them.
In issuing the RFI, NCUA said it wanted to engage the credit union system and other stakeholders and learn how emerging distributed ledger technology (DLT) and decentralized finance (DeFi) applications are viewed and used. In particular, the agency said, it wants feedback on the role NCUA can play in “safeguarding the financial system and consumers in the context of these emerging technologies.”
“The accelerating pace of change information technology brings, coupled with the widespread diffusion of computing power and the growing importance of networks, is raising new opportunities and challenges,” the agency said. “In order to continue to fulfill its mandate to maintain a safe and sound credit union system and protect credit union members, the NCUA is working to better understand the implications of these changes and the associated benefits or challenges that may exist.”
The agency described DeFi as the broad category of applications adopting peer-to-peer networks to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems. DLT (which includes blockchains) consists of a shared electronic database where copies of the same information are stored on a distributed network of computers.
Comments will be due in 60 days after publication in the Federal Register.
In a late development, the agency board dropped consideration of its 2022-26 strategic plan for this meeting (which it announced in a press release the day before the board meeting). Given that there will be no August NCUA Board meeting, the earliest the strategic plan could reappear on the board’s agenda would be for its September meeting.
LINK:
Request for Information and Comment, Digital Assets and Related Technologies
(July 23, 2021) Federally insured credit unions with $500 million or more in assets could avoid risk-based capital (RBC) requirements and opt-in to a new measure of capital adequacy if they meet a minimum net worth standard and other qualifying criteria, under a proposal issued by the NCUA Board Thursday.
Called the Complex Credit Union Leverage Ratio (CCULR, and dubbed “cooler” by members of the board), the proposal would allow the $500 million and more credit unions to opt in to the new capital standard if they also hold a minimum net worth ratio of 9% as of Jan. 1 of next year (which will be gradually increased to 10% two years later).
Other qualifying criteria include: off-balance sheet exposures held by the credit union must be 25% or less of total assets; trading assets and trading liabilities must be 5% or less of total assets; and goodwill and other intangibles must be 2% or less of total assets.
“A complex credit union that opts into the CCULR framework would not be required to calculate a risk-based capital (RBC) ratio under the Oct. 29, 2015, risk-based capital final rule” as amended in October, 2018, the proposal’s summary states. “A qualifying complex credit union that opts into the CCULR framework and that maintains the minimum net worth ratio would be considered to be well capitalized.”
Issued on a unanimous vote by the board, the proposal would make other changes to the RBC rule, according to the summary, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator, updating several derivative-related definitions, and clarifying the definition of a consumer loan.
As both NCUA staff and board members noted during the meeting, the proposal is similar to the community bank leverage ratio (CBLR) adopted by the federal banking agencies for banks and which became effective in 2020. That rule removes requirements for calculating and reporting risk-based capital ratios for most banks with less than $10 billion in assets that hold more than 9% in risk-based capital, and that meet certain risk-based qualifying criteria. Banks meeting the criteria can “opt-in” to use the CBLR.
The NCUA proposal was issued with a 60-day comment period, which means it would end sometime in either late September or early October. That doesn’t give NCUA much time to consider whatever comments it receives before finalizing a rule that will, in effect, directly affect the risk-based capital (RBC) rule set to take effect on Jan. 1.
During discussion, NCUA Board Chairman Todd Harper called the proposal a prudent course of action. “This proposal is an appropriate measure that provides complex credit unions with a streamlined approach to managing their capital levels while also strengthening the system’s resiliency to economic shocks,” he said.
He said year-end 2020 call report data indicate that nearly 75% of complex credit unions would meet the 9% net worth requirement under the proposal. He also asserted that the proposal would increase the capital buffer of insured complex credit unions, by $22 billion (to an estimated $104.6 billion) , if all of the credit unions “opted in” to the rule. (The increase in capital is compared to the total amount if the RBC rule were in effect, Harper noted.)
Board Vice Chairman Kyle Hauptman said the chief benefit of the proposal is that it allows some credit unions to bypass the risk-based capital approach. “For me, the point of this simpler leverage ratio is that it protects both credit unions and the (National Credit Union) Share Insurance Fund from the inevitable problems of risk weighting,” he said.
Although Board Member Rodney Hood said he would “begrudgingly” vote for the proposal (which he did), he took the opportunity before the vote to call for an end to the RBC rule. He said he wants the board to either table the RBC rule or rescind it, noting that it would be eight years old when it fully takes effect. “RBC should be a tool and not a rule,” he said.
LINK:
Notice of Proposed Rulemaking, Parts 702 and 703, Complex Credit Union Leverage Ratio
(July 23, 2021) State credit union examiners from around the country are invited to participate in the Aug. 16 Kentucky Examiner School, developed to help them build skill sets and enhance their knowledge around a core area of topics. The all-day virtual program kicks off at 9 a.m. and runs until 4 p.m., ET; cost is $200 for NASCUS members, $300 for all others. Among the speakers are Mark DeBree, managing principal, and Aaron Martini, director ALM services, both of Catalyst Strategic Solutions; Rayleen Pirnie, NEACH; Glory LeDu, president, LeagueInfoSight LLC; Kevin Chiappetta, president, QuantyPhi; and Brian Knight, NASCUS executive vice president and general counsel.
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