Board Action Bulletin
Board Also Proposes Amendments to Subordinated Debt Rule to Facilitate MDI and CDFI Use of the Emergency Capital Investment Program
ALEXANDRIA, Va. (Sept. 22, 2022) – The National Credit Union Administration Board held its first in-person open board meeting since the COVID-19 pandemic began, and its eighth open meeting of 2022, which included a live webcast, and unanimously approved two items:
- A notice of proposed rulemaking on Federal Credit Union Bylaws, Member Expulsion.
- A notice of proposed rulemaking on subordinated debt.
In addition, the NCUA Board received a briefing on the performance of the National Credit Union Share Insurance Fund during the second quarter of 2022. As part of the Board’s discussion on the Share Insurance Fund quarterly report, all three Board members expressed strong support for a legislative change that would provide greater access to the Central Liquidity Facility.
Proposed Rule on Member Expulsion Mandated by Congress
The NCUA Board unanimously approved a proposed rule that would amend the standard federal credit union (FCU) bylaws to adopt a policy by which a FCU member may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors. Currently, a credit union could expel a credit union member in two ways: by a two-thirds vote of the membership present at a special meeting called for that purpose, and for non-participation in the affairs of the credit union as specified in a policy adopted and enforced by the board.
NCUA Chairman Todd M. Harper said, “While there are admittedly times in which the expulsion of a member is necessary to protect credit union members and staff, this is a power that credit unions should rarely use. That’s because the Federal Credit Union Act exists so that people, particularly those of modest means, can access safe, fair, and affordable financial services. That is the statutory mission of credit unions. So, in acting today, we want to preserve this guiding principle.”
Under the Credit Union Governance Modernization Act of 2022, enacted by Congress on March 15, 2022, the NCUA has until September 15, 2023, to deve1op a final rule that FCUs may adopt to expel a member for cause.
Comments on the proposed rule must be received 60 days after publication in the Federal Register.
Board Issues Proposed Amendments to Subordinated Debt Rule; Proposal Would Allow MDI and CDFI Credit Unions to Fully Leverage ECIP
The NCUA Board unanimously approved a proposed rule that would amend the Subordinated Debt rule, which became effective January 1, 2022. The proposed change to extend the Regulatory Capital treatment of Grandfathered Secondary Capital GSC would benefit eligible low-income credit unions participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program or in other programs administered by the federal government.
The two main proposed changes would:
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Replace the maximum maturity of Notes with a requirement that any credit union seeking to issue Notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.” The January 1, 2022, final rule contained a provision requiring Notes to have a minimum maturity of five years and a maximum maturity of 20 years. The U.S. Department of the Treasury’s ECIP grant funds can be held up to 30 years, but the NCUA’s current subordinated debt rule generally limits maturity levels to 20 years. The proposed rule would fix this maturity mismatch.
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Extend the Regulatory Capital treatment of Grandfathered Secondary Capital (GSC) to the later of 30 years from the date of issuance or January 1, 2052.
The proposed rule would make four other minor modifications to the current subordinated debt rule.
“I wholeheartedly support these proposed changes because they would advance the statutory mission of federally insured credit unions to meet the credit and savings needs of their members, especially those of modest means,” Chairman Harper said. “This proposed rule would align the NCUA’s subordinated debt rule with the Treasury Department’s ECIP rule. That is good for credit union members, their credit unions, and their communities.”
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. A federally insured credit union must be certified as a Community Development Financial Institution or as a minority depository institution to participate in the program.
Comments on the proposed rule must be received 60 days after publication in the Federal Register.
Share Insurance Fund Reports Strong Performance in Second Quarter; Equity Ratio Stands at 1.26 Percent
The Share Insurance Fund reported a net income of $19.2 million and a net position of $20.3 billion for the second quarter ending June 30, 2022. The Fund’s total assets decreased to $20.3 billion at the end of the quarter from $20.6 billion at the end of the first quarter of 2022.
The equity ratio at the end of the second quarter of 2022 stood at 1.26 percent. The quarterly report included an equity ratio projection. For the period ending December 31, 2022, NCUA staff projects the equity ratio for the Share Insurance Fund will be 1.30 percent.
“Today’s briefing is filled with good news,” Chairman Harper said. “The Share Insurance Fund continued to perform well in the second quarter, as it had in the first quarter. The improved health of the Share Insurance Fund validates the NCUA Board’s wisdom in delaying the imposition of preemptive premiums on the industry earlier in the pandemic when we teetered dangerously close to the 1.20 percent statutory minimum for developing a plan to recapitalize the Share Insurance Fund. Nevertheless, we are not out of the woods just yet.”
Additionally, for the second quarter of 2022:
- The number of composite CAMEL codes 4 and 5 credit unions decreased from 125 to 117 from the end of the first quarter of 2022. Assets for these credit unions decreased from the first quarter, to $3.7 billion from $3.8 billion.
- The number of composite CAMEL code 3 credit unions increased from 751 to 755 from the end of the first quarter of 2022. Assets for these credit unions increased from the first quarter of 2022, to $44.5 billion from $43.8 billion.
At the end of the second quarter of 2022, there were three federally insured credit union failures that are projected to cost the Share Insurance Fund approximately $660,000 in losses.
Added Chairman Harper, “While we project a 1.30 percent equity ratio by the end of the year, we are already seeing liquidity issues in the industry. What is more, some of the credit unions now getting caught in a liquidity vice of rapidly rising interest rates have $1 billion or more in assets. Those billion-dollar-plus credit unions pose the risk of greater losses to the Share Insurance Fund. That fact is a flashing caution sign that we should all heed, and it indicates that we should continue to proceed carefully when making any decision about the Share Insurance Fund. Time will also tell whether this rise in the Share Insurance Fund equity ratio represents durable, sustained growth for this much watched metric or whether the increase is merely a momentary mirage.”
The second quarter figures are preliminary and unaudited.
As part of the Board’s discussion on the Share Insurance Fund quarterly report, all three Board members expressed strong support for a legislative change that would provide greater access to the Central Liquidity Facility by adjusting requirements to allow agent members to purchase capital stock for a subset of credit unions served. The Board acknowledged that the CLF provides added protection for credit unions in the event of a liquidity crisis and without this agent membership adjustment, the CLF structure cannot adequately protect the credit union system in a time of crisis, including a rapidly rising interest rate environment when liquidity shortfalls are more likely to occur.
Additional information on the performance of the Share Insurance Fund is available on the NCUA’s website.
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