(Oct. 29, 2021) Now is the time to consider additional changes to the new subordinated debt rule – rather than adopt just one change to the rule — to ensure the rule is properly calibrated for use by low-income credit unions (LICUs), NASCUS told NCUA in a comment letter this week.
The NASCUS comment letter addressed a proposal issued Sept. 23 by the NCUA Board to amend its new subordinated debt rule (which takes effect Jan. 1) to accommodate credit union access to federal investment programs. No other changes to the new rule were offered. The proposed amendment put forward last month, according to NCUA staff, would amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. government or one of its subdivisions under an application approved before Jan. 1, “irrespective of the date of issuance” (that is, when funds are issued), primarily to benefit low-income credit unions (LICUs).
The letter noted that the proposed amendment is necessary to permit LICUs to participate in the Treasury Department’s Emergency Capital Investment Program (ECIP) without having to reapply for capital treatment rule after the subordinated debt rule takes effect at the start of the new year. The association said it was fine with that change.
However, NASCUS added, the state system also supports additional changes to the subordinated debt rule to “maximize ECIP benefits to LICUs and further reduce regulatory burden.”
NASCUS wrote that it “strongly urged” the agency to “continue evaluating whether the Subordinated Debt rule is properly calibrated to the distinct features of the LICU ecosystem so as not to impede the important work done by these credit unions.”
For example, NASCUS argued, the agency should amend the final subordinated debt rule to allow instruments with 30-year maturities. “While NCUA will now permit LICUs to accept 30-year subordinated debt investment from the ECIP, the agency maintains that LICUs may only recognize 20 years of capital benefit from the funding,” NASCUS wrote. “There is no such fixed 20-year maturity limit in the current secondary capital rule for LICUs, and NCUA would be well within the spirit of the new final subordinated debt rule to allow ‘Grandfathered Secondary Capital’ to maintain the flexibility to set maturity limits based on funding needs and the marketplace.”
In general, the agency’s subordinated debt rule should provide for automatic exceptions to accommodate the terms of subsequent emergency government programs, NASCUS recommended. “Given the lingering effects of the pandemic, it is likely there could be additional Treasury Department funding programs and NCUA should provide certainty that credit unions will have equal opportunity to participate in those,” NASCUS wrote. “A basic sunset provision could provide compatibility between the Subordinated Debt rule and the rules of qualifying government funding program.”
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(Oct. 29, 2021) A series of policy statements on crypto assets activities by banks is forthcoming from federal banking regulators, the chairman of the FDIC Board said this week, as the agencies coordinate policies on how banks can engage in the developing technology.
FDIC Board Chairman Jelena McWilliams said her agency has been engaged with the Federal Reserve and the OCC and that a series of policy statements on crypto assets will be issued “in the upcoming months,” she said, focusing mostly on stablecoins.
“In order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight,” McWilliams said. “That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”
The FDIC Board chairman said her objective is to provide clear guidance to the public on how the agencies’ existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in, and what supervisory expectations the agencies have for banks that do engage in such activities.
She used stablecoins as an example of a crypto asset that needs particular attention, especially in the wake of what she called “a dramatic increase” in the use of the assets, primarily to facilitate converting crypto assets into fiat currency.
She said if stablecoin issuers claim to have reserves available on demand to satisfy withdrawal requests, “regulators should have authority to ensure the funds are there, specifically if such issuers are large enough that a stablecoin ‘run’ could result in financial instability.”
“There are other potential risks we must be cognizant of, such as ensuring operational resilience and preventing money laundering,” she said. “Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner.”
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Remarks by FDIC Chairman Jelena McWilliams at Money 20/20
(Oct. 29, 2021) Coordination with state and other federal regulators on regulation of decentralized finance (DeFi) and other emerging uses of digital assets is crucial to avoid conflicting rules and confusion, NASCUS wrote in a comment letter to NCUA– one of two posted by the association to the agency this week.
However, the association noted, the regulated and trusted incumbent credit union and banking systems offer the best and safest path forward for the growing consumer use of digital assets and the other innovations brought forth by DeFi.
The letter was in response to the NCUA Board’s July-issued “request for information,” which highlighted the agency’s interest in the impact of distributed ledger technology (DLT, such as blockchain) and DeFi. The original comment due date was extended late last month by 30 days, closing out Oct. 27.
The RFI posed more than two dozen questions over five subject areas: the use of DLT and DeFi applications within the credit union system; development of such projects with third-party relationships or credit union service organizations (CUSOs); risk and compliance management; supervision, including whether and how regulation should be revised to address such activities; and share insurance and resolution – including, among other things, how to distinguish between uninsured digital assets and insured shares.
The state system said it applauded the agency for developing its understanding of DeFi, emerging technologies, and how “credit union stakeholders have engaged with digital assets and emerging DeFi ecosystem.”
However, NASCUS also “strongly recommended” that the agency coordinate with both state and other federal regulators with jurisdiction over products, services and participants engaged in DeFi. “Lack of coordination between regulatory systems can lead to conflicting rules and supervisory expectations that would further complicate and hinder credit union participation in the DeFi ecosystem,” NASCUS stated.
As an example, NASCUS noted that there is a “dizzying array of evolving digital currency with critically distinct features,” pointing to (among others) unregulated decentralized convertible virtual currency (CVC), stablecoins, and central bank digital currencies (CBDCs). “Each of these types of currencies carry different consumer protection, money laundering, and volatility risks,” NASCUS wrote. “Close coordination between regulators will help ensure a common understanding of which products carry which risks.”
Further, NASCUS wrote, NCUA should focus “narrowly on material financial safety and soundness risks with respect to federally insured state credit unions (FISCUs) and defer to state law regarding permissibility of FISCU activities in this space. So doing will ensure the most vibrant innovation for credit union engagement in DeFi by leveraging the power of the dual chartering system.”
In other comments, NASCUS wrote:
- The DeFi ecosystem is diverse, and regulation should distinguish between those credit unions using digital assets, creating digital assets, providing services to members’ use of digital assets, and credit unions’ own use of DeFi technology. “A one-size-fits-all approach to regulating, or supervising, credit union engagement with DeFi will stifle innovation and leave stakeholders at a competitive disadvantage,” NASCUS stated.
- Providing an on-ramp to DeFi stakeholders will require the agency to consider enhanced flexibility in existing rules and powers for credit unions. For example, NASCUS wrote, facilitating credit unions’ ability to explore “banking as a service” (BaaS, offered in partnership with financial technology (fintech) firms) “may require evolving views on associational field of membership or authority to provide pass-thru services to a business member’s customers.” Further engagement with fintechs, NASCUS wrote, “may require expanding permissible services for natural person and corporate CUSOs and permitting credit unions to hold equity investments in non-CUSO fintechs and other entities.” The preemptive application of its rules on FISCUs’ state-authorized powers should be minimized by NCUA, NASCUS argued, to allow the dual chartering system to maximize its potential for innovation among the states.
Comment from National Association of State Credit Union Supervisors
(Oct. 29, 2021) Each of three town halls will be led by a member of the NCUA Board at its diversity, equity and inclusion (DEI) conference set for three days early next month, the agency said this week.
NASCUS President and CEO Lucy Ito is also participating in the event, sitting on two panels.
NCUA Board Chairman Todd Harper will lead off with the first town hall at the agency’s DEI Summit, which runs from Nov. 2 to Nov. 4. His session will discuss DEI in relationship to 2020-21 newsworthy events and the importance of having a leadership commitment to DEI. Other topics will include racism in banking and the role of credit unions in DEI, according to an NCUA press release.
Board Member Rodney Hood will host the second day’s town hall, which features two panels on financial inclusion. The first from a “non-federal perspective,” the second from inside the agency (particularly through the agency’s Advancing Communities through Credit, Education, Stability and Support (ACCESS) initiative.
Board Vice Chairman Kyle Hauptman will host the third day’s town hall, focusing on credit union financial inclusion initiatives and partnerships with external organizations.
The agency said it would also host several concurrent sessions following the Nov. 3 and Nov. 4 town halls, focusing on DEI subjects.
In addition, the credit union think-tank Filene Research Institute will report on results of recent studies and analysis of diversity surveys and research.
NASCUS’ Ito appears on two panels at the Summit: The first on Tuesday (Nov. 2, 4-4:45 p.m. ET) in the “Fireside Chat: What is the Credit Union’s Role in this DEI Journey.” Appearing alongside the NASCUS leader will be CUNA President Jim Nussle and NAFCU CEO B. Dan Berger. Samira Salem, CUNA vice president of DEI, will moderate the session.
The second panel featuring Ito will be Wednesday (Nov. 3; 2:15- 3:45 p.m. ET) in the panel “How to Increase Gender Diversity in the C-Suite.” Also on the panel will be Mary McDuffie (Navy Federal CU president and CEO), Shruti Miyashiro (Orange County’s CU CEO), Tracey Jackson (ResourceOne CU CFO). Eleni Giakoumopoulos, WOCCU Global Women’s Leadership Network program director, will moderate the session.
Each day’s programs begin at 12:30 p.m. ET, NCUA said.
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Diversity, Equity and Inclusion Summit 2021
(Oct. 29, 2021) NCUA Board meetings in 2022 will be – again – on Thursdays, beginning at 10 a.m. ET, and skipping an August meeting, the agency said in a release this week. In most cases, the meetings will be on the third Thursday of the month – with the exceptions of January, May and September, when the meeting falls on the fourth Thursday of each month … NASCUS Credit Union Advisory Council Chairman Mike Williams, who is also president and CEO of Colorado Credit Union in Denver, was named a ‘Most Admired CEO’ by the Denver Business Journal this week. The award, the publication said, recognizes CEOs who are driving transformative change within their organization, industry, and the community … The Oregon Department of Consumer and Business Services has three openings for a Financial Examiner 3 extended to Nov. 29. See the link below for details (and other recent job openings) … Congrats to the New York Credit Union Association (NYCUA) for its steadfast efforts in achieving credit union authority to participate in its state’s program to provide commercial loans to small and mid-sized businesses at reduced interest rates. Legislation was signed by NY Gov. Kathy Hochul (D) to authorize credit unions to participate in the program – the culmination of an effort that NY credit unions began in the 1990s. The new law also allows marks the first time New York state has been authorized to deposit public funds in credit unions, according to NYCUA … Congrats, also, to CUNA, state associations and others for convincing congressional negotiators to keep out from the “framework” of the massive “build back better” legislation a provision that would require increased reporting of some members’ savings accounts by credit unions to the IRS. Reports Thursday indicated the provision has been omitted from the framework.
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NCUA Board Announces 2022 Meeting Schedule
(Oct. 29, 2021) A Texas credit union that expects to start operations by year’s end is the third to be chartered in 2021 by NCUA, the agency said this week.
The agency said Capital Federal Credit Union (FCU) in Lubbock would provide services to a multiple common-bond field of membership that will include employees of Capital Mortgage Services of Texas, members of the League of United Latin American Citizens — Lubbock, Texas Council #263, and an underserved portion of Lubbock County consisting of 39 census tracts.
NCUA said the credit union will also seek the low-income credit union (LICU) designation by focusing on serving the Latin American population in the underserved area.
Although the new credit union will not initially offer checking accounts and debit card access (which it plans to do later, NCUA said), it will offer such services as savings accounts, vehicle and personal loans, online banking and mobile banking.
Earlier this year, the agency chartered Maun FCU in Kendall Park, N.J., as an Islamic-faith-based, no-interest credit union; and Community First Fund FCU in Lancaster, Pa., a community development financial institution (CDFI) aimed at serving the approximately 550,000-person community of Lancaster County.
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NCUA Charters Capital Federal Credit Union
(Oct. 29, 2021) A webinar demonstrating the power of the CU Campus 365 program – presented in partnership by NASCUS and the Bank Administration Institute (BAI) – will be offered Nov. 9 at 1 p.m. ET.
CU Campus 365 offers affordable, customizable on-line compliance and education for credit unions, with access anytime, anywhere, on affordable terms. The program is provided through the digital resources of BAI, a non-profit, prominent provider of research, training, and leadership programs for credit unions, banks and other financial institutions of all sizes.
CU Campus 365 delivers to credit union training administrators customized training they may deploy to their staffs on a wide variety of subjects and disciplines. That includes choosing from a library of hundreds of courses ranging from lending laws and regulations to BSA/AML laws and regulations. Credit union staff will also be able to access training from a professional skills library that will cover coursework from effective leadership to social media marketing through CU Campus 365.
The Nov. 9 webinar will present a comprehensive look at the program, including how credit unions may benefit. For registration and other details, see the link below.
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CU Campus 365 Demo Webinar, Nov 9; 1-1:30 p.m. ET
(Oct. 29, 2021) Stimulating greater competition in consumer financial markets, sharpening focus on repeat offenders, and restoring “relationship banking” make up the “path forward” for CFPB, its director told a House committee this week.
Appearing before the House Financial Services Committee, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra outlined the focus for the agency during his term. He was sworn in Oct. 12 for a five-year term (after Senate confirmation Sept. 30), subject to the will of the president. (Chopra appeared before the Senate Banking Committee this week also, repeating the goals he outlined before the House panel.)
“The CFPB intends to faithfully and fairly administer the consumer financial laws entrusted to the agency by Congress,” Chopra said. “We must use our tools to promote an equitable and inclusive recovery,” he added, referring to the economic condition of the country.
In stimulating “greater competitive intensity,” Chopra asserted that there are many places where greater competition would benefit households and businesses. “For example, I am concerned that there is a dearth of competition in the mortgage refinance market for families with lower balance mortgages,” Chopra said. “The lack of refinancing may disproportionately affect communities of color and others that are historically disadvantaged.”
Regarding credit card and savings interest rates, the CFPB director hinted the bureau would be looking at those areas. “There is also evidence to suggest that many Americans could be paying lower interest rates on their credit cards or earning higher interest rates on their savings,” he said.
He also said the agency would keep “a close eye on practices that might impede competition.” Chopra said the bureau would listen to local financial institutions and “nascent competitors” on the obstacles they face when challenging more dominant players, “including in big tech.”
In sharpening focus on repeat offenders – especially those that violate agency for federal court orders – Chopra said those who violate orders and cause “ongoing harm to families and low-abiding businesses” must be stopped. He said his agency intended to work closely with state regulators and other federal banking agencies (such as the OCC) to “fashion appropriate remedies for repeat offenders.”
In restoring relationship banking, Chopra indicated that automation and algorithms more and more define the consumer financial services market. He charged that results in less transparency into how credit decisions are made. In some cases, he added, those “big data” practices “can unwittingly reinforce biases and discrimination, undermining racial equity.”
He also tied credit reporting, and other industries, to his call for restoring relationship banking, charging that consumers are often not the customer and lack leverage to get problems fixed. “The inability to cut through red tape and get help in one’s financial life can be a major obstacle when seeking a job or when applying for credit,” he said. “Preserving relationship banking is critical to our nation’s resilience and recovery, particularly in these times of stress.”
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(Oct. 29, 2021) Credit unions, banks and other lenders should use census tract information provided in the 2020 Census for mortgage-related data collected beginning next year, CFPB said this week. In a “HMDA Reminder,” the bureau noted that Regulation C (which implements the Home Mortgage Disclosure Act, or HMDA) requires financial institutions to provide census tract information for certain purposes.
“To determine what to report for this data point, a covered financial institution must look to the ‘most recent decennial census conducted by the U.S. Census Bureau’ and ‘use the boundaries and codes in effect on Jan. 1 of the calendar year covered by the loan/application register that it is reporting,’” the bureau said.
Census tract data provided by the 2020 census must be applied to data collected beginning Jan. 1, 2022, the bureau added.
Additionally, according to the agency, the FFIEC’s “Geocoder” will use census tract information from the 2020 census also beginning with the new year. (Geocoder is a web-based tool designed to help financial institutions meet the legal requirement to report information on mortgage, business, and farm loans.)
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