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Board Action Bulletin

Share Insurance Fund Posts Quarterly Loss Due to Increased Loss Provisions

ALEXANDRIA, Va. (Oct. 19, 2017) – The National Credit Union Administration Board held its eighth open meeting of 2017 at the agency’s headquarters here today and unanimously approved four items:

• A final rule enhancing due process and providing consistency with other federal financial institutions regulators in the supervisory appeals process.
• A final rule providing uniform, comprehensive procedures to govern the agency’s regulatory appeals process.
• A proposed rule to reduce regulatory burdens by removing some of the capital planning and stress testing requirements currently applicable to federally insured credit unions with assets of $10 billion or greater.
• A request for information to be published in the Federal Register on standardizing the loan, deposit, and investment information collected electronically during examinations.

The Chief Financial Officer briefed the Board on the performance of the National Credit Union Share Insurance Fund, which posted a net loss for the third quarter due to increased provisions for insurance losses.

Appeals Process for Agency Decisions Improved

The process of appealing agency decisions to the NCUA Board will be more efficient, consistent, and transparent under a final rule (new Part 746, Subpart B) approved by the Board.

Several current NCUA regulations include an embedded appeals process, but the new rule will replace those provisions with a uniform, comprehensive set of procedures that will apply in cases in which a decision by a regional director or other program office director is appealed to the Board.

The new rule will affect appeals of decisions in areas including chartering and field of membership, investment authority, conversions and mergers, creditor claims in liquidations, and share insurance determinations. Certain areas, such as formal enforcement actions, prompt corrective action, and material supervisory determinations, would not be covered under the new rule.

The new rule, available online here (opens new window), will become effective Jan. 1, 2018.

Agency Enhances Due Process in Supervisory Review Committee Appeals

The Board approved a final rule (new Part 746, Subpart A) that will create better due process in appeals of material, examination-related supervisory determinations.

Changes in the appeals process include:

• Expansion of the number of material supervisory determinations that can be appealed to the agency’s Supervisory Review Committee;
• Creation of an optional intermediate level of review before an appeal goes to the Committee; and
• Changes in the nature and composition of the Committee.

Under the new rule, an appeal at any level would not affect, delay, or impede any formal or informal supervisory or enforcement action in progress. Likewise, it would not affect NCUA’s authority to take any supervisory or enforcement action against a federally insured credit union.

The new rule, available online here (opens new window), will become effective Jan. 1, 2018.

Proposed Changes to Capital Planning, Stress Testing Would Tailor Requirements

The NCUA’s capital planning and stress testing requirements would become more tailored to the size, complexity, and financial condition of covered credit unions and provide a measure of regulatory relief under a proposed rule (Part 702) approved by the Board.

The NCUA Board approved a final rule requiring capital planning and stress testing for federally insured credit unions with assets of $10 billion or greater in April 2014. That rule anticipated the possibility of covered credit unions being allowed to conduct stress tests, once the NCUA had completed three stress tests. The rule proposed today would authorize federally insured credit unions with assets of $10 billion or greater to conduct their own stress tests in accordance with the NCUA’s requirements and allow those credit unions to incorporate the stress test results into their capital plan submissions to the agency.

The proposed rule would break covered credit unions into three tiers, with tailored requirements:

• Tier 1—Credit unions with assets greater than $10 billion in their first three capital planning cycles. Stress testing would not be required.
• Tier 2—Credit unions with three or more capital planning cycles, but with less than $20 billion in assets. These credit unions would run stress tests under the NCUA’s scenarios and guidance, but they would not be subject to the 5 percent minimum stress-test ratio.
• Tier 3—Credit unions with $20 billion or more in total assets. These credit unions would run stress tests under the NCUA’s scenarios and guidance and be subject to the 5 percent minimum stress-test ratio.

NCUA has reserved the right to conduct stress tests on covered credit unions if it deems such action necessary.

Comments on the proposed rule, available online here (opens new window), must be received within 60 days of publication in the Federal Register.

Agency Seeks Stakeholder Comments on Proposed New Data Collection Format

The NCUA is seeking comments from credit union stakeholders on its plans to modernize formats for loan, deposit and investment data collected electronically during examinations after the Board’s approval of a Federal Register notice.

The proposed modernization is part of the agency’s Enterprise Solution Modernization Program and is expected to provide benefits to the agency and to credit unions, including a more consistent examination process, more efficient use of examiner time, reduced burdens on credit unions—including less time examiners spend onsite—improved data reliability and quality, and enhanced data analysis.

Responses to the request for information, available online here (opens new window), must be received within 60 days of publication in the Federal Register.

Share Insurance Fund Posts Net Loss Due to Insurance Loss Provisions

The Share Insurance Fund in the third quarter of 2017 posted a net loss of $74.6 million, primarily due to the increase of $76.9 million in the provision for insurance losses.

The fund’s assets increased to $13.7 billion at the end of the quarter due to the billing of $476.1 million for capital deposits from credit unions with assets greater than $50 million. Third-quarter investment and other income was $50.8 million. Operating expenses were $51.1 million.

As of September 2017, the calculated equity ratio is 1.25 percent. The equity ratio is calculated on an insured share base of $1.1 trillion and includes the recently billed capital deposits.

For the third quarter of 2017, the Chief Financial Officer reported:

• The number of CAMEL codes 4 and 5 credit unions decreased 2.9 percent from the second quarter of 2017 to 204 from 210.
• Assets in CAMEL codes 4 and 5 credit unions decreased 3.8 percent from the second quarter of 2017 to $10.2 billion from $10.6 billion.
• The number of CAMEL code 3 credit unions declined 0.2 percent from the second quarter of 2017 to 1,086 from 1,088.
• Assets in CAMEL code 3 credit unions declined 2.8 percent from the second quarter of 2017 to $55.1 billion from $53.6 billion.

There were two credit union failures during the third quarter of 2017, compared to one credit union failure in the third quarter of 2016. Year-to-date, four federally insured credit unions failed through September 2017, compared to 12 failures as of September 2016. Total year-to-date losses associated with credit union failures are $3.9 million, compared to $8.5 million through September 2016. Fraud was not a contributing factor for either failure during the quarter.

The third-quarter figures are preliminary and unaudited.

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. NCUA also live streams, archives and posts videos of open Board meetings online.