NCUA Board Proposes Increasing Threshold for ONES Supervision

Board Action Bulletin

Share Insurance Fund Assets Grew in 2021; Equity Ratio at 1.26 Percent

ALEXANDRIA, Va. (Feb. 17, 2022) – Through a live webcast, the National Credit Union Administration Board held its second open meeting of 2022 and unanimously approved two items:

• A notice of proposed rulemaking for assigning certain federally insured credit unions to the appropriate NCUA supervisory office.
• An interim final rule that extends two temporary changes to the NCUA’s prompt corrective action regulations.

In addition, the NCUA’s Chief Financial Officer briefed the Board on the performance of the Share Insurance Fund during the fourth quarter of 2021.

Board Approves NPR on Threshold for Determining the Appropriate Supervisory Office

The NCUA Board approved a notice of proposed rulemaking that would amend the NCUA’s regulations to change the $10 billion asset threshold for assigning federally insured credit unions to the Office of National Examinations and Supervision (ONES).

“This proposed rule is a natural evolution in the agency’s examination program as the number of large, complex credit unions increases,” NCUA Chairman Todd M. Harper said. “It leverages the strengths of the agency’s regional structure to ensure the NCUA can effectively and efficiently monitor potential risks associated with these institutions with existing resource allocations and it provides proper oversight of those systemically critical credit unions, which pose a significant risk to the Share Insurance Fund because of their size and complexity.”

The proposed rule would change the asset threshold used to determine when a consumer credit union comes under the enhanced supervision of the NCUA’s Office of National Examinations and Supervision. Under the proposed rule, credit unions with more than $15 billion in total assets would be supervised by ONES. Credit unions with between $10 billion and $15 billion in total assets would continue to be supervised by their appropriate Regional Office. Large consumer credit unions currently under ONES’ supervision would continue to be supervised by the office. The proposed rule would not alter any other regulatory requirements for credit unions covered under these regulations.

The Office of National Examinations and Supervision began operations in 2013 and oversees the largest and most complex credit unions in the credit union system. It also supervises the corporate credit union system.

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

Share Insurance Fund Assets and Net Income Grow; Equity Ratio Stands at 1.26 Percent

The Chief Financial Officer briefed the NCUA Board on the performance of the National Credit Union Share Insurance Fund and the status of the fund’s equity ratio, noting that the fund reported a net income of $184.5 million and a net position of $20.6 billion for 2021. Additionally, the Share Insurance Fund’s assets rose to $20.7 billion at the end of the year from $19.1 billion at the end of 2020.

As of Dec. 31, 2021, the Share Insurance Fund’s calculated equity ratio was 1.26 percent, an increase from 1.23 percent reported as of June 30, 2021. The equity ratio was calculated on an insured share base of $1.6 trillion. The equity ratio was lower than the Board-approved normal operating level of 1.33 percent.

“After another challenging year, the Share Insurance Fund continues to perform well and remains on a solid footing,” Chairman Harper said. “Overall, the credit union system has also, thus far, withstood the pandemic’s evolving economic fallout. This is a testament to the strength of the credit union system going into the pandemic and the skillful management of credit union CEOs, boards of directors, and staff over the last two years.”

For the fourth quarter of 2021:

• The number of CAMEL codes 4 and 5 credit unions decreased to 129 from 141 in the third quarter of 2021. Assets for these credit unions remained the same at $8.8 billion from the third quarter of 2021.
• The number of CAMEL code 3 credit unions decreased to 752 from 759 in the third quarter of 2021. Assets for these credit unions decreased $4.4 billion from the third quarter of 2021, to $43.0 billion from $47.4 billion.

Seven credit union failures incurred a loss to the Share Insurance Fund in 2021, compared to one credit union failure in 2020. The cost of the 2021 failures was $5.6 million.

The Chief Financial Officer also reported the agency’s four funds — the Share Insurance Fund, the Operating Fund, the Central Liquidity Facility, and the Community Development Revolving Loan Fund — each received an unmodified, or “clean,” audit opinion for 2021 from the agency’s independent auditor, KPMG LLP.

Interim Final Rule on Prompt Corrective Action Relief Renewed

The NCUA Board approved an interim final rule that would extend certain regulatory requirements currently in effect to help ensure that federally insured credit unions remain operational and liquid during the COVID-19 pandemic.

“For nearly two years, the pandemic has greatly affected the credit union system and our nation’s economy,” Harper said. “We, however, likely have not yet seen the full impact of the pandemic on consumer credit union balance sheets and performance. As such, the renewal of these targeted measures for another year is a prudent course of action at this time.”

This interim final rule renews two temporary changes to the NCUA’s prompt corrective action regulations. The first amends these regulations to temporarily extend the Board’s ability to issue an order applicable to all federally insured credit unions to waive the earnings retention requirement for any federally insured credit union that is classified as adequately capitalized. The second extends a provision that modifies the specific documentation required for net worth restoration plans for federally insured credit unions that become undercapitalized.

These temporary modifications will be in place until March 31, 2023. This rule is substantially similar to interim final rules the Board approved on April 22, 2021, and May 20, 2020, as part of the NCUA’s pandemic response efforts.

Comments on the interim final rule must be received no later than 60 days following publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA 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.