The National Association of Federally-Insured Credit Unions (NAFCU) expressed its support for the National Credit Union Administration’s (NCUA) proposed rule to amend its risk-based net worth requirement.
NCUA’s proposal would define a complex credit union for purposes of the current risk-based net worth, or RBNW, requirement as a credit union with quarter-end assets that exceed $500 million. It would also have an RBNW requirement that exceeds 6 percent in advance of the 2022 effective date of the final risk-based capital (RBC) rule.
Andrew Morris, NAFCU’s senior counsel for research and policy, said the relief provided by the amendment will allow credit unions to better prioritize service to members and support lending activities.
“The need for capital relief cannot be overstated, even as the country begins to surmount the worst effects of the COVID-19 pandemic,” Morris stated. “The entire credit union industry has been working tirelessly to fuel the engine of economic recovery with new loans, forbearances, and other accommodations to address the hardships faced by members who have lost jobs or experienced strains on household finances for the past year. The intensity of this member-focused activity has coincided with increased pressure on net worth and risk-based net worth ratios resulting from an elevated savings rate and influx of government stimulus.”
Morris said NAFCU also backs NCUA’s assessment that the new, amended threshold will better match the prospective risk-based capital requirement without any risk to safety and soundness. He called on the NCUA to swiftly finalize and publish the rule to ensure that credit unions can fully realize the relief benefits.
“Credit unions are now approaching the second quarter of 2021,” Morris stated. “If the amendment is not finalized as soon as possible, the administrative benefits associated with increasing the threshold will be substantially diluted for those credit unions who must hold additional capital under the current RBNW rule and expect to remain under $500 million in assets after January 1, 2022.”
In addition, Morris identified other opportunities for capital relief, including asset threshold. NAFCU expressed concern for credit unions approaching the $10 billion threshold, at which point the CFPB also has supervisory authorities. NAFCU supports NCUA’s interim final rule approved during its March board meeting, allowing for additional time to prepare for heightened regulatory and supervisory demands once this threshold is hit. This would be done by permitting federally-insured credit unions to use asset data as of March 31, 2020, for the 2021 and 2022 calendar years to determine whether the institution is subject to capital planning and stress testing supervision. Banking regulators have provided similar relief to community banks, Morris noted.
Also, Morris advocated for the NCUA to reinstate and extend an interim final rule – which expired Dec. 31, 2020 – that provided prompt corrective action flexibility by temporarily waiving the earnings retention requirement for any federally-insured credit union that is classified as adequately capitalized. Also, it would permit federally-insured credit unions to submit simplified net worth restoration plans if they attest that a reduction in capital was caused by a temporary condition due to the coronavirus pandemic.
NAFCU will continue to urge the NCUA to provide credit unions with the tools and flexibility needed to effectively serve their 124 million members working to overcome the financial impact of the coronavirus pandemic.