Board Action Bulletin
Approves Final Complex Credit Union Leverage Ratio, Mortgage Servicing Rules
ALEXANDRIA, Va. (Dec. 16, 2021) – The National Credit Union Administration Board held its eleventh open meeting of 2021 through a live webcast and approved four items:
- The operating, capital, and National Credit Union Share Insurance Fund budgets for 2022 and 2023;
- A final rule creating a simplified measure of capital adequacy for complex credit unions;
- A final rule permitting federal credit unions to purchase mortgage servicing rights from other federally insured credit unions; and
- A final rule amending the NCUA’s subordinated debt rules to facilitate investments from the U.S. Treasury’s Emergency Capital Investment Program.
In addition, the NCUA Board approved the National Credit Union Share Insurance Fund’s Normal Operating Level to be 1.33 percent in 2022.
Budgets Approved for 2022, 2023
The NCUA Board unanimously approved the agency’s budgets for 2022 and 2023 (opens new window). In approving the final 2022 budget, the Board also approved a $15 million credit against the 2022 Operating Fee, reducing by approximately 12 percent the amounts that would otherwise be due from credit unions that pay the fee.
Combined, the 2022 operating, capital, and Share Insurance Fund administrative budgets will be $339.5 million, a decrease of $1.9 million, or 0.6 percent, compared to the 2021 Board-approved budget levels. The combined budgets for 2023 are estimated at $381.3 million.
|Operating||$320.1 million||$363.4 million|
|Capital||$13.1 million||$13.1 million|
|Share Insurance Fund Administrative||$6.2 million||$4.8 million|
|Grand Total*||$339.5 million||$381.3 million|
* Note: grand totals adjusted for rounding.
“The budget is smaller in dollars and full-time equivalents compared to the initial staff draft, but it still achieves the important goals of protecting credit union members, maintaining the safety and soundness of the credit union system, and safeguarding the Share Insurance Fund. Highlights of the recommended budget include more resources for small credit unions. This was a high priority for me,” NCUA Chairman Todd M. Harper said. “It was a pleasure to work with my fellow Board members and their senior policy advisors, as well as the agency’s budget staff, to find the common ground between us on this recommended 2022–2023 budget.”
The budget supports a total of 1,196 full-time employees for 2022 and 1,204 full-time employees in 2023. Additionally, information on the NCUA’s budget can be found on its Budget and Supplementary Materials page on NCUA.gov.
Board Approves Complex Credit Union Leverage Ratio Final Rule
The NCUA Board unanimously approved a final rule (opens new window) that simplifies the risk-based capital requirements for eligible complex credit unions. Under the final rule, a complex credit union that maintains a minimum net worth ratio that meets other qualifying criteria is eligible to opt into the complex credit union leverage ratio (CCULR) framework if they have a minimum net worth ratio of nine percent.
“This final rule is a balanced approach that gives complex credit unions a risk-based capital framework comparable to those developed by the other federal banking agencies,” said Chairman Harper. “It strengthens the system’s capital levels and provides 70 percent of complex credit unions with a streamlined approach to managing their capital. As we continue to address the fallout of the COVID-19 pandemic, this final rule is a prudent course of action.”
The final rule:
- Is modeled on the Community Bank Leverage Ratio established by the federal banking agencies.
- Would relieve complex credit unions that satisfy specified eligibility criteria from having to calculate the risk-based capital ratio. In exchange, the credit union would be required to maintain a higher net worth ratio than otherwise required for well-capitalized classification.
- Includes amendments to the 2015 risk-based capital final rule, including addressing asset securitizations issued by credit unions, clarifying the treatment of off-balance sheet exposures, deducting certain mortgage servicing assets from a complex credit union’s risk-based capital numerator, revising the treatment of goodwill, and amending other asset risk weights.
The final rule is effective January 1, 2022, the same date that the agency’s risk-based capital rule will take effect.
Final Rule on Subordinated Debt Will Aid Credit Unions that Participate in ECIP Program
A final rule (opens new window) that amends the subordinated debt rule finalized in December 2020 was unanimously approved by the NCUA Board.
Specifically, the final rule amends the definition of “Grandfathered Secondary Capital” to include any secondary capital issued to the United States government or one of its subdivisions under a secondary capital application approved before January 1, 2022, irrespective of the date of issuance. This amendment will benefit eligible low-income credit unions that are either participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program or other programs administered by the U.S. government that can be used to fund secondary capital, if they do not receive the funds for such programs by December 31, 2021.
Said Harper, “The funding provided by ECIP will be a game-changer for participating MDI and CDFI credit unions and their communities. These institutions are often the only federally insured financial institutions in underserved areas, rural districts, and communities of color. In the months ahead, I encourage all credit unions to support safe, fair, and affordable lending to their members.”
The Emergency Capital Investment Program was created as part of the Consolidated Appropriations Act, 2021, to help community-based financial institutions support consumers and local small businesses in low-income and underserved communities disproportionately affected by the economic effects of the COVID-19 pandemic.
On December 14, the U.S. Treasury announced that 85 credit unions will receive approximately $2 billion in funding that can be used as secondary capital.
The final rule will become effective on January 1, 2022.
Mortgage Servicing Assets Final Rule Amends the NCUA’s Investment Regulation
The NCUA Board unanimously approved a final rule (opens new window) that amends the NCUA’s investment regulation to permit federal credit unions to purchase mortgage servicing assets from other federally insured credit unions subject to specific requirements.
“After working with my fellow Board Members, we have developed a final rule that strikes an appropriate balance,” Harper said. “This final rule will allow federal credit unions to purchase mortgage servicing assets from other federally insured credit unions, while also installing proper safeguards to mitigate the potential risks associated with this line of business.”
Under the final rule, federal credit unions with a CAMELS composite rating of 1 or 2, including a Management component rating of 1 or 2, may purchase the mortgage servicing rights of loans from federally insured credit unions, provided that:
- The underlying mortgage loans of the assets are loans the federal credit union is otherwise empowered to grant;
- The purchase will be made in accordance with the federal credit union’s written policies that address the risk of these investments and servicing practices; and
- The federal credit union’s board of directors or investment committee approves the purchase in advance.
Additionally, the final rule relocates the current authority for a federal credit union to provide mortgage servicing to its members engaged in the mortgage lending business from the investment regulation to the incidental powers rule.
The final rule is effective April 1, 2022.
Board Lowers Normal Operating Level for the Share Insurance Fund
As unanimously approved by the Board, the normal operating level (opens new window) for the National Credit Union Share Insurance Fund is now 1.33 percent, down from the previous level of 1.38 percent, which was set in 2020 and remained unchanged in 2021.
Said Harper, “The staff’s recommendations to revise the existing policy based on changes in the system and set the normal operating level at 1.33 percent are prudent. This revised policy will continue the objectives of retaining public confidence in federal share insurance, preventing impairment of the one-percent contributed capital deposit, and ensuring the Share Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period.”
The normal operating level is the equity ratio set by the NCUA Board based on the Share Insurance Fund’s forecasted needs. The Federal Credit Union Act allows the NCUA Board to set the normal operating level between 1.20 percent and 1.50 percent. Additional information on the normal operating level can be found on the NCUA’s website.
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