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Board Action Bulletin

Corporate system reform rule finalized

The NCUA Board today issued a final rule that establishes a new, comprehensive framework for corporate credit union safety and soundness. The rule will strengthen the corporate credit union system and reduce the systemic risk associated with the corporate system.

 

Major revisions include:

• Capital Standards – bolster corporate capital, require minimum retained earnings levels, and establish prompt corrective action requirements;
• Investments – prohibit private label residential mortgage backed securities and subordinated securities, and establish various concentration limits to ensure diverse investment pools and risk mitigation;
• Asset/Liability Management – prevent cash flow mismatches and preserve liquidity;
• Corporate CUSOs – limit to activities approved by NCUA, and provide NCUA greater access; and
• Governance – establish board qualifications and increase transparency.

 

The rule also includes conforming amendments to Part 702, Prompt Corrective Action (for natural person credit unions); Part 703, Investments and Deposit Activities (for federal credit unions); Part 747, Administrative Actions, Adjudicative Hearings, Rules of Practice and Procedure, and Investigations; and Part 709, Involuntary Liquidation of Federal Credit Unions and Adjudication of Creditor Claims Involving Federally Insured Credit Unions.

 

To ensure credit unions understand the new rule and legacy asset resolution, NCUA is addressing stakeholder questions. Chairman Matz will host a Town Hall webinar next Monday afternoon, and she announced today that 11 additional Regional Town Hall meetings will be held in October at numerous locations across the country.

 

View all new corporate credit union regulations and policies and register for the webinar online at the new NCUA webpage “Corporate System Resolution” listed below, and next Monday look for registration information for the Regional Town Hall meetings.

 

Corporate credit union legacy asset resolution outlined

NCUA’s deputy executive director reported that over the past two years some corporate credit unions (essentially “banker’s banks”) have suffered severe losses from a decline in the value of mortgage backed securities they held. These losses threatened to destabilize the entire credit union system and interrupt payment transactions for 90 million consumers. NCUA has been successful in stabilizing the situation, and is now prepared to resolve the individual problem institutions and reform the regulatory framework for corporate credit unions.

 

The NCUA resolution plan is based on a comprehensive analysis of the entire corporate system. Resolution involves NCUA assuming control of a total of five corporate credit unions, two of which have been under conservatorship since 2009. NCUA will then isolate and fund a total of almost $50 billion in troubled (legacy) assets held by these institutions. NCUA has secured the services of Barclays Capital, New York, New York, to facilitate funding these legacy assets in the markets at the least long-term cost consistent with sound public policy.

 

Isolating legacy assets prevents the need to sell them at severely distressed prices. Securitizing and giving them a U.S. government guarantee and then selling them to investors on the open market will provide financial resolution. The proceeds raised by their sale will fund the legacy assets. This key component of the resolution will help ensure NCUA resolves the situation at the lowest possible cost, consistent with sound public policy.

 

NCUA is committed to ensuring no disruption in corporate payment system processing. NCUA will use bridge corporates to facilitate an orderly transition of the operations of these five institutions.

 

Overall the credit union system remains strong. Credit unions, not taxpayers, will fund all costs associated with the corporate credit union system solution. NCUA consulted the Treasury, Federal Reserve, and other federal financial regulators in developing these plans and will continue to work closely with these agencies to ensure the orderly resolution of troubled corporates, the effective implementation of the steps outlined, and the continued smooth operation of the credit union system.

 

Board delegates corporate credit union CUSO authority

The NCUA Board delegated authority to the Director, Office of Corporate Credit Unions (OCCU) to review, and approve or disapprove, applications from corporate CUSOs under the new paragraph 704.11(e)(1)(iii) of the NCUA R&Rs to engage in certain categories of activities.

 

The activities subject to this delegation are those authorized for federal credit union CUSOs under §712.5. Any application that goes beyond the scope of activities listed in §712.5 will be decided by the NCUA Board. The delegation also authorizes the OCCU Director to post approved corporate CUSO activities on NCUA’s website.

 

Corporate credit union chartering guidelines issued

The NCUA Board issued proposed guidelines setting forth NCUA requirements and the process for granting new corporate FCU charters.

 

NCUA is issuing these guidelines as Interpretive Ruling and Policy Statement (IRPS) “Corporate Federal Credit Union Chartering Guidelines” with a 30-day comment period. Prior to finalization, NCUA will also use the proposed guidelines to process any corporate FCU charter applications received during the comment period.

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.

Board Action Bulletin

The NCUA Board unanimously approved placing Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union into conservatorship.

The NCUA Board considered four supervisory matters that remain confidential at this time.

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.

Board Action Bulletin

NCUA Guaranteed Notes classify as low-risk assets

The NCUA Board approved an interim final rule amending the definition of low-risk assets to add “debt instruments unconditionally guaranteed by the National Credit Union Administration” under Section 702.104(d) of NCUA Rules & Regulations. The revision will ensure NCUA Guaranteed Notes (NGNs) receive a zero risk weighting for PCA risk-based capital requirements consistent with the other federal financial regulators.

 

NCUA is offering NGNs to public investors as part of the corporate system resolution plan approved at the special open NCUA Board meeting on September 24. NGNs are permissible investments for credit unions. The interim final rule confirming the zero risk weight is intended to maximize credit union participation in NGN offerings.

 

The rule is effective when published in the Federal Register and has a 30 day comment period.

 

Merger Partner Registry available for CUs interested in expanding

NCUA has created a Merger Partner Registry in the 5300 Call Report system, Credit Union Online. The registry enables credit unions to convey their interest in expanding their field of membership through a merger or purchase & assumption of a troubled credit union. NCUA and state supervisory authorities will use the information to broaden the pool of potential merger partners for troubled credit unions. The registry is confidential and cannot be viewed by other credit unions or released to the public.

 

 

NCUA does not participate in the identification and selection process when two healthy credit unions elect to merge. However, if a merger or purchase & assumption becomes necessary and involves financial assistance, NCUA participates in identifying and selecting the continuing credit union partner.

 

NCUSIF Public Education Campaign Briefing

NCUA launched a comprehensive public education campaign October 4 to raise consumer awareness of federal deposit insurance coverage through the National Credit Union Share Insurance Fund (NCUSIF). The national campaign includes audio, video and print public service announcements (PSAs), a multimedia news release and matte release (a pre-written, ready-to-insert article for use in small daily and community newspapers), a radio and Internet media tour, social media outreach, and a new NCUA website combine to heighten awareness of the federal insurance protection provided to the vast majority of credit union members.

 

The campaign announcement, informational multimedia news release and matte release issued two weeks ago to nearly 1,000 outlets has the potential to reach many millions, while the majority of print medium pick-up is expected in the next 3-5 weeks.

 

PSAs featuring personal finance guru Suze Orman – with the tag line, “Keep Your Money NCUA-Safe” – were distributed to 1,500 cable and network TV stations and 4,300 cable and network radio stations. Plus, billboards featuring Orman were placed in targeted malls and bus shelters nationwide.

 

To kick off the campaign, NCUA Chairman Debbie Matz participated in 12 radio and Internet interviews with major radio networks and programs broadcast by 993 local stations, including The Wall Street Journal Network, MarketWatch, Federal News Radio, NPR and online Voice America Business.

 

Using social media tools, TheNCUA Tweets regularly; an active National Credit Union Administration Facebook site offers information and updates; while YouTube offers PSAs plus a behind-the-scenes interview with Orman so financial bloggers and the general public have easy access to this vital information.

 

A new agency webpage – www.ncua.gov/NCUAsafe.aspx — includes NCUA’s Twitter Feed and a link to the e-Calculator to help members maximize their NCUSIF insurance coverage.

 

The webpage also includes a downloadable “widget” credit unions can place on their websites that links directly to the PSAs. NCUA encourages credit unions to add the widget to their websites so members have easy access to the educational PSAs about share insurance protection. NCUA plans to continue the NCUSIF public education campaign through 2011.

 

RegFlex amendments finalized

The NCUA Board, by 2-1 vote, approved final revisions to the agency’s Regulatory Flexibility Program (RegFlex) to strengthen safety and soundness requirements in Parts 701, 723 and 742 affecting fixed assets, member business loans (MBLs), stress testing investments, and discretionary control of investments to enhance safety and soundness for credit unions. Six other provisions for RegFlex-qualified credit unions remain unchanged.

 

Effective 30 days after publication in the Federal Register, some revisions require conforming amendments to NCUA’s fixed asset and MBL rules.

 

NCUSIF, TCCUSF reports

The National Credit Union Share Insurance Fund (NCUSIF) equity ratio was 1.18 percent on September 30, 2010, the same level reported for August 31, 2010. Invoices for the 1 percent capitalization deposit adjustment and 0.1242 percent premium assessment will be mailed in late October with a due date of November 22, 2010.

 

Year-to-date net losses for the Share Insurance Fund were reported at $563.7 million. Through September, the fund recorded $643.2 million in insurance loss expense bringing the month end reserve balance to $1.16 billion.

 

At September 30, 2010, 374 federally insured credit unions, with total assets of $45.3 billion, and total shares of $40.0 billion, were designated as CAMEL codes 4 or 5. Additionally, there were 1,769 CAMEL 3 credit unions with assets of $160.3 billion and shares of $141.6 billion. Together, nearly 23 percent of all assets are in credit unions with a CAMEL code of 3, 4 or 5.

 

Through September, 25 federally insured credit unions have failed in 2010, including 15 liquidations and 10 assisted mergers.

 

The Temporary Corporate Credit Union Stabilization Fund reported a total liabilities and net position of $369 million and revenue of $4 million. During September, the Fund used the amounts collected from the July special premium assessment and proceeds from a loan repayment to retire its $1.5 billion loan with the U. S. Treasury.

 

NCUA Strategic Plan 2011-2016 approved

The NCUA Board approved the NCUA Strategic Plan 2011-2016, which serves as the foundation for the agency’s performance management process. The plan provides guidance and direction to the agency by identifying the long-term goals used to indicate successful agency mission accomplishment. The plan was drafted based on internal input and two public comment periods. It was coordinated with agency leaders as well as Congress and the Office of Management and Budget.

 

Some significant enhancements to NCUA’s strategic plan include: a new concise mission statement and revised vision statement; two added strategic goals emphasize the agency’s commitment to increased transparency in regulations and to human capital management; greater specificity on corporate credit unions; and external factors that may affect agency performance.

 

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.

Board Action Bulletin

The NCUA Board voted unanimously to uphold the decisions of the Asset Management and Assistance Center denying two insurance claims arising from the liquidation of St. Paul Croatian Federal Credit Union.

The NCUA Board considered five supervisory matters that remain confidential at this time.

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.

Member Accounts are Safe and Federally Insured 

ALEXANDRIA, Va. (October 21, 2010) — The National Credit Union Administration (NCUA) placed Phil-Pet Federal Credit Union, located in Pampa, Texas, into liquidation on October 18, 2010.

 

NCUA made the decision to close Phil-Pet Federal Credit Union and discontinue its operation after determining the credit union is insolvent. At the time of the liquidation, the $3.7 million credit union, chartered in 1940, served 765 members. Phil-Pet Federal Credit Union is the 16th federally insured credit union liquidation in 2010.

 

NCUA‘s Asset Management Assistance Center will transfer share accounts to Pantex Federal Credit Union of Borger, Texas. Pantex Federal Credit Union is a full service credit union that also has branches in Fritch and Pampa, Texas. It has $216.8 million in assets and serves approximately 15,939 members in the Texas Panhandle.

 

Member accounts are insured up to at least $250,000, with coverage provided by the National Credit Union Share Insurance Fund, a federal fund backed with the full faith and credit of the U.S. Government. Members with questions about their insurance coverage can contact NCUA’s Share Insurance Call Center at 1-800-755-1030, and press 1, Monday through Friday during normal business hours.

Member Service Continues Uninterrupted

ALEXANDRIA, Va. (October 29, 2010) – The National Credit Union Administration (NCUA) today was appointed liquidating agent of The Union Credit Union (TUCU) of Spokane, Washington, by the Washington Department of Financial Institutions (DFI) after DFI closed TUCU.

 

Immediately following appointment as TUCU liquidating agent, NCUA entered into agreements with Alaska USA Federal Credit Union of Anchorage and Numerica Credit Union of Spokane to purchase and assume certain assets and liabilities of TUCU.

 

TUCU members will experience no interruption of service and immediately become members of Numerica Credit Union. Their accounts remain federally insured by the National Credit Union Share Insurance Fund (NCUSIF) up to at least $250,000.

 

Numerica Credit Union has $1 billion in assets and serves approximately 84,000 members. It is located at 14610 E. Sprague Avenue in Spokane. Alaska USA Federal Credit Union has $4.1 billion in assets and serves approximately 399,000 members.

 

At the time of liquidation, TUCU had approximately $11,909,715 in assets and served 3,115 members. TUCU was established in 1968 to serve the members of Bricklayers Local 3. This is the 17th federally insured credit union liquidation in 2010.

Board Action Bulletin

The NCUA Board unanimously approved the creation of a Loss Share Pilot Program as a potential option for resolving large, complex problem credit unions at the lowest cost to the National Credit Union Share Insurance Fund.

The NCUA Board voted unanimously to uphold the decisions of the Asset Management and Assistance Center denying three insurance claims arising from the liquidation of St. Paul Croatian Federal Credit Union.

The NCUA Board unanimously approved Tawana Y. James to head the agency’s new Office of Minority and Women Inclusion (OMWI) to be established effective January 21, 2011.

The NCUA Board considered one Pilot Program that remains confidential at this time.

The NCUA Board considered four supervisory matters that remain confidential at this time.

The NCUA Board considered one Personnel matter that remains confidential at this time.

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.

Board Action Bulletin

NCUA adopts 2011 budget of $225.4 million

The NCUA Board approved a 2011 operating budget of $225.4 million. The budget increased by $24.5 million or 12 percent over 2010. It includes 78 additional staff positions and accommodates program adjustments to ensure the successful execution of the agency’s safety and soundness mission.

 

The most significant increase in personnel relates to the annual examination program, which was started in 2010. This program adds 60 field positions to the regions and incorporates more frequent onsite contact for all federal credit unions. Increased examiner resources are required for examination of every federal credit union every year, and problem code credit unions are more closely monitored.

 

The $24.5 million increase is split between baseline changes and program changes. Baseline changes, which total $14.3 million, represent funds needed to maintain the agency’s current level of services. Program changes, which total $10.2 million, represent program initiatives. An approved $2.5 million capital budget includes $1.3 million primarily for maintaining information systems and $1.2 million for ongoing renovation to the agency’s 18-year old headquarters.

 

Chairman Debbie Matz mentioned during the budget discussion that current Office of Small Credit Union Initiatives Director Tawana Y. James has been selected to lead the new Office of Minorities and Women Inclusion (OMWI) effective January 21, 2011. The agency’s new OMWI was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

 

 

FCU operating fee scale declines 2.86 percent

The NCUA Board reduced the 2011 natural person federal credit union operating fee by 2.86 percent while maintaining Operating Fund cash reserves and contingency funds based on predicted NCUA operating costs.

 

Assets of natural person federal credit unions are predicted to increase approximately 3.40 percent during 2010; thus, the asset level dividing points for the 2011 operating fee scale is increased by 3.4 percent. Operating fees are due by Friday, April 15, 2011.

 

 

Overhead transfer rate set

The NCUA Board approved a 58.9 percent overhead transfer rate (OTR) for 2011 based on federal and state examination and supervision workload, staff time spent on insurance related duties, and the increased cost of NCUA resources and programs.

 

The National Credit Union Share Insurance Fund (NCUSIF) covers agency expenses associated with insurance-related functions of NCUA operations. In addition to federal credit union operating fees, the OTR is a funding source for the NCUA budget; however, it does not affect the amount of the budget, which the Board approves separately. The OTR is applied to actual expenses incurred each month.

 

The method used to calculate the OTR, which is detailed in the Board Action Memorandum, was evaluated by an independent, expert firm. Initial draft reports indicate NCUA’s OTR methodology is equitable and has no material weaknesses.  

 

 

Interim rule addresses technical corrections

The NCUA Board approved an interim final rule that includes three technical corrections to clarify the intent of the new, Part 704, corporate credit union rule published in the Federal Register in October.

 

The interim rule revises the definition of collateralized debt obligation, investments now prohibited for corporate credit unions. The revised definition excludes the following types of permissible investments – commercial mortgage-backed securities, securities fully guaranteed by the U.S. government or government-sponsored enterprises, and securities collateralized by government guaranteed securities.

 

The interim rule also corrects the list of investments exempt from single obligor limits and credit rating requirements in §704.6; and it corrects Model Form “H” instructions, clarifying that the form is only for use on or after October 20, 2011. Effective January 18, 2011, the interim final rule was issued with a 30-day comment period.

 

Corporate amendments proposed

The NCUA Board issued proposed amendments to Part 704 as a follow-on rulemaking to the recently approved final rule on corporate credit unions (corporates). The proposals would require corporates to establish new internal control reporting requirements and establish an enterprise-wide risk management committee staffed with a risk management expert, conduct all board of director votes as recorded votes, and disclose certain CUSO compensation received by employees who are dual employees of corporates and corporate CUSOs. The proposed amendments also provide for the equitable sharing of Temporary Corporate Credit Union Stabilization Fund expenses among all members of a corporate and permit a corporate to charge reasonable one-time or periodic membership fees. In addition, the proposal would amend 12 C.F.R. Parts 701 and 741 to limit natural person credit unions to membership in one corporate at a time.

 

The amendments were issued with a 30-day comment period, and a final is expected in early 2011.

 

NCUSIF, TCCUSF reports

The National Credit Union Share Insurance Fund (NCUSIF) equity ratio was reported at 1.29 percent as of October 31, 2010. The increase from the September 30, 2010, equity ratio of 1.18 percent was due to invoicing the semi-annual capitalization deposit adjustment and the 0.1242 percent premium assessment, which are due November 22, 2010.

 

Year-to-date, the fund is reporting net income of $323.5 million. Through October, the fund recorded $694.4 million in insurance loss expense, bringing the month-end reserve balance to $1.21 billion.

 

At October 31, 2010, 378 federally insured credit unions, with assets of $44.4 billion, and shares of $39.1 billion, were designated as CAMEL codes 4 or 5. Additionally, there were 1,774 CAMEL 3 credit unions with assets of $160.3 billion and shares of $141.4 billion. Nearly 23 percent of all assets are in CAMEL code 3, 4 or 5 credit unions.

 

Through October, 27 federally insured credit unions have failed in 2010 — 17 liquidations and 10 assisted mergers.

 

The Temporary Corporate Credit Union Stabilization Fund reported a total liabilities and net position of $4.37 billion, up from $370 million reported as of September 30, 2010. The change reflects the $4 billion borrowed from the U. S. Treasury and loaned to Western Bridge Corporate Federal Credit Union. The Stabilization Fund also reported revenue of $554,000.

 

Financial data reported for both the Share Insurance Fund and the Temporary Corporate Stabilization Fund are preliminary and unaudited.

 

Assessment predictions in 2011

A combined NCUSIF premium and Stabilization Fund assessment are projected to range between 20 and 35 basis points and cost between $1.5 and $2.7 billion in 2011.

 

The NCUSIF premium is based on variables that include insured share growth, investment income, insurance loss expense and the NCUSIF equity level. The Stabilization Fund considers borrowed funds, cash flows and affordability.

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.

 

NCUA Liquidates Constitution Corporate Federal Credit Union 

ALEXANDRIA, Va. (November 19, 2010) — NCUA has announced that on November 30, 2010, Constitution Corporate Federal Credit Union (Constitution) will be liquidated. Constitution was placed into conservatorship by the NCUA Board on September 24, 2010, as part of the agency’s overall corporate resolution efforts. Liquidation is the next step in gaining control of the mortgage-backed securities on Constitution’s balance sheet to facilitate the securitization of those assets. This is the same process that was undertaken at four other corporate credit unions with significant investments in distressed securities.

 

As part of NCUA’s commitment that payment processing and other critical services for Constitution’s members continue uninterrupted, NCUA is transferring Constitution’s operations to Members United Bridge Corporate Federal Credit Union (Members United). NCUA made this decision after determining it was in the best interest of Constitution’s members and the NCUSIF.

Member accounts are federally insured, service to members continues uninterrupted

ALEXANDRIA, Va. (December 14, 2010) — The National Credit Union Administration (NCUA) today was appointed liquidating agent of Beehive Credit Union of Salt Lake City, by the Utah Department of Financial Institutions (DFI); and Security Service Federal Credit Union of San Antonio, Texas, immediately purchased and assumed Beehive’s assets, liabilities and members.

The new Security Service Federal Credit Union members will experience no interruption in credit union service, and their accounts remain federally insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). Security Service Federal Credit Union is a large, full service institution with $5.9 billion in assets and 785,000 members.

At closure, Beehive had approximately $145 million in assets and served 18,000 members. The credit union was established in 1954 to serve employees of Utah state government. This is the 18th federally insured credit union liquidation in 2010.