(March 12, 2021) Two new summaries of final rules on corporate credit union purchase of subordinated debt, and on joint ownership share accounts, were posted by NASCUS this week.
Both are available to members only.
In October the NCUA Board approved a new corporate credit union rule that, as proposed, included a section on corporate purchase of credit union subordinated debt. However, the portion on purchase of subordinated debt was left out of the final rule. The board said then it would adopt that portion of the rule once it had finalized the subordinated debt final rule. Since that rule was adopted in December, the board then finalized late last month the subordinated debt portion of the corporate rule. NASCUS supported the provision.
The final rule takes effect Jan. 1.
The joint ownership share accounts final rule was approved by the NCUA Board at its Feb. 18 meeting. The rule, which takes effect March 26, would allow account records information other than a signature card to support the insured status of a joint ownership share account in a credit union. The final rule provides federally insured credit unions with an alternative method to satisfy the membership card or account signature card requirement. NASCUS supported the proposal.
LINKS:
NASCUS summary: Corporate Credit Unions (purchase of subordinated debt) (members only)
NASCUS summary: Joint Ownership Share Accounts (members only)
(Jan. 15, 2021) In other action at its Thursday meeting, the NCUA Board:
- Adopted a final rule clarifying that corporate credit unions may purchase subordinated debt instruments issued by natural person credit unions (allowed under a final rule issued by NCUA late last year). The final rule also specifies the capital treatment of these instruments for corporate credit unions that purchase them. NASCUS and the state system strongly supported the subordinated debt rule, which allows well-capitalized, federally insured credit unions to count subordinated debt as capital for risk-based net worth purposes. The agency said it delayed finalizing the corporate rule, proposed in February 2020, until the subordinated debt rule itself was approved last month.
- Released (for a 30-day comment period, on a 2-1 vote with Harper dissenting) a proposed rule that would add to the agency’s list of permissible CUSO services the origination of any type of loan that a federal credit union (FCU) may originate. This expands the list of permissible loans by CUSOs from only business loans, consumer mortgage loans, student loans, and credit cards to any type of loan an FCU may originate, including, for example, automobile and small-dollar (payday) loans – the two types NCUA said would likely draw the newest involvement by CUSOs.
- Issued (for a 30-day comment period, on a 2-1 vote again with Harper voting no) a proposal raising the threshold for a credit union to be considered “complex” under risk-based capital rules from $50 million to $500 million and a risk-based net worth requirement that exceeds 6%. The change, if adopted, would be effective until the current risk-based capital (RBC) rule goes into effect, currently set for Jan. 1, 2022. “The COVID-19 pandemic has created a vital need for financial institutions, including credit unions, to provide access to responsible credit and other member services to support consumers,” which the agency inferred would be facilitated by the proposal.
- Heard a report on its 2021 Annual Performance Plan, which essentially outlines the general direction of the agency for the coming year through its strategic goals of: Ensuring a safe and sound credit union system; providing a regulatory framework that is transparent, efficient and improves consumer access; and “maximizing organizational performance to enable mission success.”
LINKS:
Final Rule, Part 704, Corporate Credit Unions
Proposed Rule, Part 702, Risk-Based Net Worth, Complex Threshold
Proposed Rule, Part 712, Credit Union Service Organizations
NCUA’s 2021 Annual Performance Plan
(Dec. 11, 2020) Two new summaries were posted this week by NASCUS, outlining an NCUA final rule on corporate credit unions and an interagency proposal about codifying the use of “supervisory guidance” from federal agencies. Both are available to members only.
Corporate final rule clarifies provisions
The final rule on corporate credit unions, generally aimed at clarifying a number of provisions in NCUA’s rules, was adopted unanimously by the NCUA Board in October. The rule takes effect next week (Dec. 14), and addresses five key areas:
- permits 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.
Although the proposal did contain two provisions regarding proposed subordinated debt offerings by credit unions, the final rule leaves those out. NCUA decided to remove both of those provisions, noting that both sections would be addressed in a final rule on subordinated debt in the future. The agency added that it does not envision any changes to the proposed definition of a debt instrument included in the proposal.
‘Supervisory guidance’ would be codified
In late October, NCUA joined the federal banking agencies and the CFPB in proposing a rule (for a comment period ending Jan. 4) aimed at clarifying and codifying the role of supervisory guidance from federal financial institution regulators. 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.
NCUA has maintained that the proposal will not create a burden for credit unions – partially because, the agency said, NCUA has followed the intent of the proposal for at least the last seven years. NCUA has noted that, at least since 2013, all “documents of resolution” for credit unions have been to specific statutory and regulatory citations – a practice, the agency has vowed, would not change under the proposed rule.
LINKS:
Summary: corporate rule (members only)
Summary: role of supervisory guidance (members only)
(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.