(June 25, 2021) Allowing otherwise healthy credit unions to continue to focus on serving their members through rules providing regulatory relief from prompt corrective action has once again won the support of the state system, NASCUS said in a comment letter filed late last week.
NASCUS filed the comment on NCUA’s temporary regulatory relief rule in response to COVID-19-prompt corrective action, which took effect April 19. The rule allowed NCUA to waive the earning retention requirement for any federally insured credit union classified as adequately capitalized. It also allowed certain qualifying undercapitalized FICUs to submit simplified net worth restoration plans (NWRPs). The rule extended action taken in spring 2020 as the financial impact of the pandemic became apparent.
“The extraordinary effects of the COVID-19 pandemic and subsequent government efforts to mitigate the resulting economic dislocation strained the regulatory capital of some otherwise healthy credit unions,” NASCUS wrote. “The changes made by the IFR provide targeted regulatory relief without unduly increasing risk to the share insurance fund.”
LINK:
NASCUS Comments on Temporary Regulatory Relief Rule in Response to COVID-19-Prompt Corrective Action
(June 11, 2021) Actions taken by the federal credit union regulator in April – extending temporary provisions giving credit unions some regulatory relief from savings surges during the coronavirus crisis – were reinforced by the agency late last week in a letter to federally insured credit unions.
NASCUS has prepared a summary of the letter, which is available now (members only).
In its Letter to Credit Unions (21-CU-04), the NCUA Board reminded credit unions that the actions it took in April — reducing the earnings retention requirement for credit unions classified as adequately capitalized, and permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth during the coronavirus crisis – are in effect until the end of March 2022.
The action taken in April was essentially an extension of a decision made in June 2020, which the agency said was taken in “anticipation that some federally insured credit unions may experience a temporary reduction in earnings and regulatory capital ratios due to their COVID-19 response efforts.” Those temporary modifications expired Dec. 31, 2020.
However, NCUA decided earlier this year to reintroduce the temporary changes, due to the continued impact of the COVID-19 pandemic, the agency said.
LINKS:
NCUA Letter to Credit Unions 21-CU-04, Renewal of Prompt Corrective Action Relief
NASCUS SUMMARY: LTCU 21-CU-04, renewal of PCA relief (members only)
(April 23, 2021) Meanwhile, the NCUA Board did hear two briefings during its Thursday meeting: on cybersecurity and on an interim final rule (IFR) it adopted late last week on regulatory relief due to savings surges at credit unions.
Regarding the IFR, the board on April 16 announced it had adopted, by notation vote, the IFR that reduces the earnings retention requirement for credit unions classified as adequately capitalized, and permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth during the coronavirus crisis. The rule is substantially similar to a rule adopted in May 2020 but that lapsed at year-end. The rule took effect immediately and remains in place until March 31, 2022.
In a release last week, the agency said that, due to the pandemic’s continued financial and economic disruptions, it was necessary to reintroduce the two temporary relief measures.
Under the first provision of the IFR (reducing the earnings retention requirement for credit unions classified as adequately capitalized), NCUA said those credit unions unable to meet the requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.
Under the second provision (permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth due to the crisis), if a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.
A 60-day comment period, ending June 18, is also open for the IFR.
The briefing on cybersecurity provided a status update (including threats and mitigation trends). Johnny Davis, the agency’s top cybersecurity expert, focused on supply chain risk management in his presentation, noting the agency will host a table-top exercise on the issue in August. He said the agency is looking for credit unions to volunteer to participate in the exercise, to gauge if there are additional items for due diligence consideration by the agency.
Davis noted that NCUA will be working with the Treasury Department, the Department of Homeland Security, and other law enforcement and intelligence agencies to carry out the planned exercise with credit unions.
NASCUS President and CEO Lucy Ito said the association looks forward to the inclusion of state supervisory authorities in this effort and other NCUA table-top exercises to more fully capture the totality of the national credit union environment in modeling supply chain attacks and other possible cyber intrusions.
At the end of the conversation at the meeting, Board Member Hood made a pitch for NCUA to procure examination authority over vendors to credit unions. Davis, in response to Hood’s query, said doing so would require an additional eight to 11 agency staff members, and an annual budget of up to $2 million (although Hood indicated that if NCUA obtains vendor exam authority, he would favor the FDIC’s model of not increasing its budget, at least initially).
“It’s important to note that NCUA would focus only on those significant service providers in core processing and payment arenas that are not already covered in the work that we do jointly with the FFIEC and our banking (regulatory) counterparts,” Davis said.
He added that “selected entities” subject to oversight would need to pose a significant concentration risk to credit unions in regard to service and products being consumed. “Exams would not be on an annual basis; likely a three to five year life cycle,” he said, calling that “very similar to collective audit spread of security controls.”
Davis said that “lifecycle” would also give the agency a chance to continuously monitor effectiveness, noting that “operational efficiencies would occur over time.”
Regarding vendor exam authority for NCUA, NASCUS supports the agency obtaining the power over technology service providers (TSPs) that provide services to federally insured credit unions — provided that any such authority requires NCUA to rely on state examinations of such service providers where such authority exists at the state level. Further, NASCUS supports efforts to strengthen state regulatory exam and supervision of third parties providing services to state-chartered credit unions.
Later this year, NASCUS, in partnership with the Credit Union Natl. Assn. (CUNA), hosts the Sept. 3-Nov. 9 Cybersecurity eSchool, a multi-week, virtual program developed to explore latest popular and important cybersecurity topics, including strategies and tactics on how to keep credit union data safe.
LINKS:
Temporary Regulatory Relief in Response to COVID-19 – Prompt Corrective Action
April 2021 NCUA Board Presentation: Cybersecurity Update (Current Events and Trends)
Cybersecurity eSchool, in Partnership with CUNA
(April 16, 2021) In a development Friday morning, the NCUA Board announced it had adopted an interim final rule (IFR) by notation vote that reduces the earnings retention requirement for credit unions classified as adequately capitalized, and permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth during the coronavirus crisis.
The board adopted the IFR – which is substantially similar to a rule adopted last May but that lapsed at year-end 2020 – in a notation vote. The IFR is also the subject of a briefing for the board at its regular monthly meeting Thursday (April 22). That same meeting will also include a board briefing on cybersecurity.
The IFR takes effect immediately; the vote also keeps the temporary measures in place until March 31, 2022.
Last May, the board issued an IFR that waived the earnings retention requirement for “adequately capitalized” credit unions and eased net worth restoration plan requirements for some “undercapitalized” credit unions. That rule, approved with an expiration date of Dec. 31, 2020, was intended to help ensure that federally insured credit unions (FICUs) remained operational and liquid during the COVID-19 crisis.
NCUA called this week’s rule “substantially similar” to the regulation adopted nearly a year ago. The agency said that, due to the pandemic’s continued financial and economic disruptions, it was necessary to reintroduce the two temporary relief measures.
Under the first provision of the IFR (reducing the earnings retention requirement for credit unions classified as adequately capitalized), NCUA said those credit unions unable to meet the requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.
“However, if a credit union either poses an undue risk to the National Credit Union Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA Regional Director may require the credit union to submit an earnings transfer waiver request,” the agency said.
Under the second provision (permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth due to the crisis), if a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.
In a statement, NCUA Board Chairman Todd Harper said the changes reflect the impact of the influx of savings by members into their credit unions from stimulus payments and other sources. “The latest round of stimulus spending has further expanded credit unions’ balance sheets,” Harper said. “As a result, many well-run credit unions with positive earnings now have lower net worth ratios. Given the continued uncertainty with the pandemic and share growth many credit unions are seeing, this targeted, tailored and temporary rule will provide critical relief so eligible credit unions can focus their limited resources on their members’ needs instead of planning for earnings transfers and developing detailed net worth restoration plans.”
Board Vice Chairman Kyle Hauptman characterized the rule as a method for allowing credit unions to stay focused on serving members. Board Member Rodney Hood observed that “while this temporary relief wasn’t widely utilized last year when it expired, it now appears we need this tool now for credit unions.”
The IFR has a 60-day comment period, ending on June 18.
LINKS:
Temporary Regulatory Relief in Response to COVID-19 – Prompt Corrective Action