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Board Action Bulletin

ALEXANDRIA, Va. (Jan. 14, 2021) – Through a live audio webcast, the National Credit Union Administration Board held its first open meeting of 2021 and approved six items:

• A proposed rule that would raise the asset threshold for defining a credit union as “complex” for purposes of being subject to any risk-based net worth requirement.
• An advance notice of proposed rulemaking that solicits comments on two approaches to simplify risk-based capital requirements.
• A proposed rule that would add the “S” component to the existing CAMEL rating system and redefine the “L” component.
• A proposed rule expanding the list of permissible activities and services for credit union service organizations.
• A final rule clarifying that corporate credit unions may purchase subordinated debt instruments.
• The NCUA’s 2021 Annual Performance Plan.

In addition, the NCUA Board was briefed on the agency’s ACCESS Initiative, the Consolidated Appropriations Act, 2021, and annual adjustments to the agency’s civil monetary penalties.

Proposal Would Raise the Asset Threshold in NCUA’s Risk-based Capital Rule

By a 2-1 vote, the NCUA Board approved a proposed rule (opens new window) that would raise the asset threshold for defining a credit union as “complex” for purposes of being subject to any risk-based net worth requirement in Part 702 of the NCUA’s regulations.

The proposed rule would amend the NCUA’s regulations to provide that any risk-based net worth requirement will be applicable to only a federally insured, natural-person credit union with quarter-end assets that exceed $500 million and a risk-based net worth requirement that exceeds six percent. This change would remain in place until the risk-based capital rule goes into effect.

“This proposal aligns with my regulatory philosophy of ensuring regulation is effective, not excessive. It is also important to remember that risk-based net worth is just one tool the agency uses to assess capital adequacy,” NCUA Chairman Rodney Hood said. “All credit unions will continue to be subject to a minimum net worth requirement. This proposed rule would not alter the NCUA’s longstanding expectation that a credit union is considered unsafe and unsound if it does not hold capital commensurate with its risk exposure, even if it is above the regulatory minimum.”

Comments on the proposed rule must be received no later than 30 days following publication in the Federal Register.

Board Approves ANPR on Capital Requirements

By a 2-1 vote, the Board approved an advance notice of proposed rulemaking (opens new window) that solicits comments on two approaches to simplify risk-based capital requirements. The Board’s risk-based capital requirements are set forth in a 2015 final rule, which is scheduled to become effective on Jan. 1, 2022.

At its December 2019 meeting, the Board delayed the effective date of the final risk-based capital rule by providing additional time to evaluate the capital standards for federally insured credit unions that are classified as “complex” or those with total assets greater than $500 million.

The first approach would replace the risk-based capital rule with a risk-based leverage ratio requirement, using relevant risk attribute thresholds to determine those complex credit unions required to hold additional capital. The second approach would retain the 2015 risk-based capital rule but enable eligible complex federally insured credit unions to opt-in to a “complex credit union leverage ratio” framework to meet all regulatory capital requirements. The complex credit union leverage ratio approach would be modeled on the community bank leverage ratio framework, which is available to certain banks.

Comments on the advance notice of proposed rulemaking must be received no later than 60 days following publication in the Federal Register.

Proposed Rule Would Add “S” to the CAMEL Rating System

The NCUA Board unanimously approved a proposed rule (opens new window) that would add the “S” (Sensitivity to Market Risk) component to the existing CAMEL rating system, thus updating the rating system from CAMEL to CAMELS, and redefine the “L” (Liquidity Risk) component.

The estimated implementation of this proposal is approximately one year or as early as the first quarter of 2022. Comments on the proposed rule must be received no later than 60 days following publication in the Federal Register.

Proposal Would Expand Permissible Activities and Services for CUSOs

The NCUA Board, by a 2-1 vote, approved a proposed rule (opens new window) that would amend the NCUA’s credit union service organization (CUSO) regulation. The proposed rule would accomplish two objectives:

• Expand the list of permissible activities and services for CUSOs to include originating any type of loan that a federal credit union may originate; and
• Grant the Board additional flexibility to approve permissible activities and services.

The NCUA is also seeking comment on broadening the investment authority of federal credit unions in CUSOs.

Comments on the proposed rule must be received no later than 30 days after publication in the Federal Register.

NCUA’s 2021 Annual Performance Plan Approved

The Board unanimously approved the NCUA’s 2021 Annual Performance Plan (opens new window), which provides specific direction and guidance toward achieving the mission and the strategic goals and objectives outlined in the agency’s 2018–2022 Strategic Plan (opens new window).

“The Annual Performance Plan lays out how we will oversee the credit union systems and to manage and protect the Share Insurance Fund in the coming year as we navigate the current COVID-19 crisis,” Hood said. “I believe that this plan sets forth performance goals for 2021 that, when met, will make for a stronger NCUA and industry.”

The plan also describes the means, strategies, and specific actions the agency has resourced and intends to undertake to achieve each strategic objective. The Annual Performance Plan was developed simultaneously with the 2021–2022 budget. As part of the budget development process, NCUA offices justified how budget requests would further the purpose of the NCUA’s strategic goals and objectives, and identified specific performance indicators that demonstrate the results of budgetary investments.

Final Rule Amends the NCUA’s Corporate Credit Union Regulations

The Board unanimously approved a final rule (opens new window) that amends the NCUA’s corporate credit union regulation. The final rule:

• Updates the definitions in this regulation and makes clear that corporate credit unions may purchase subordinated debt instruments issued by natural-person credit unions; and
• Specifies the capital treatment of these instruments for corporate credit unions that purchase them.

This final rule is effective Jan. 1, 2022.

Briefing Notes Agency’s Progress in Advancing Financial Inclusion

The NCUA’s Office of Consumer Financial Protection and Office of Credit Union Resources and Expansion briefed the Board (opens new window) on the agency’s ACCESS Initiative, which identifies and implements how the agency can:

• Help credit unions bring more people into the mainstream financial system;
• Ensure unbanked and underserved people and communities have access to affordable financial services and broaden employment and business opportunities; and
• Reduce regulatory burden and foster greater innovation and flexibility so credit unions can meet the evolving needs of their members.

“NCUA’s ACCESS initiative is bringing together agency leaders to develop policies and programs that support financial inclusion within the agency and more broadly, throughout the credit union system,” Hood said. “We must recognize there’s no “silver bullet” to combating inequity. Instead, we need a carefully considered, comprehensive agenda that puts financial inclusion for underserved, minority communities at its core while focusing on those of modest means.”

Launched in October 2020, the NCUA’s ACCESS initiative, or Advancing Communities through Credit, Education, Stability, and Support, brings together leaders across the NCUA to refresh and modernize regulations, policies, and programs in support of greater financial inclusion within the agency and the credit union system. It will build on earlier successes and address the financial services and financial literacy needs of underserved and diverse communities across the U.S, as well as expand opportunities for employment.

Additional information on the ACCESS Initiative is available on the NCUA’s website at www.ncua.gov/access.

Board Briefed on Consolidated Appropriations Act, 2021

The NCUA Office of General Counsel briefed the Board on the Consolidated Appropriations Act, 2021, as it relates to the extension of enhancements to the Central Liquidity Facility in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act made several changes to Title III of the Federal Credit Union Act, which governs the CLF. These changes were scheduled to sunset on Dec. 31, 2020. The Consolidated Appropriations Act, among other things, extended the sunset date of the CLF enhancements in the CARES Act to Dec. 31, 2021. The Board was briefed on this extension and potential regulatory actions the Board may take to align the NCUA’s regulations with the Consolidated Appropriations Act.

Board Briefed on Required Inflation Adjustments to Civil Monetary Penalties

The Office of General Counsel briefed the Board on the required inflation adjustments for the maximum amounts for civil monetary penalties under its jurisdiction, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

The act requires agencies to adjust the maximum amounts of civil monetary penalties annually to account for inflation. The NCUA Board previously approved these adjustments by notation vote on Dec. 29, 2020. The final rule (opens new window) will become effective upon publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.