Proposed rule intended to ‘clarify’ regs governing credit union acquisition of banks (or ‘combination transactions’)

A new rule intended to clarify requirements for a federally insured credit union (FICU) when it proposes to acquire or merge with a bank or other institution was proposed by the National Credit Union Administration (NCUA) Board at its meeting Thursday in Alexandria, Va.

In proposing the rule, the agency noted that credit union acquisitions of banks – which, historically, have been rare occurrences – has seen an uptick recently. For example, the proposal includes a chart showing 15 credit union acquisitions in 2019 (for all or part of another institution’s assets and liabilities) – but 17 already pending for 2020. Between 2013 and 2017, according to the NCUA numbers, only 20 such transactions were made.

“Because of a desire to add even more transparency, and the questions the NCUA has received recently from FICUs, the Board believes it would be beneficial to clarify the processes and requirements related to FICU applications for these transactions,” the agency wrote in its proposal. “This increased transparency will assist FICUs seeking to engage in these transactions to meet the NCUA’s requirements.”

However, the uptick in credit union acquisitions has raised the objection of some in the banking industry, who have called credit union acquisition of banks “yet another example of how credit unions are pursuing aggressive growth opportunities while falling short of their statutory mission to serve households of small means.”

NCUA Chairman Rodney Hood said he brought the proposal forward following requests for clarity about credit union bank acquisitions from both credit unions and banks. He said the proposal will provide the clarity for credit unions, for example, without imposing “undue burden” on them.

The proposal, issued for a 60-day comment period, includes provisions that:

  • Specify the basic requirements applicable to the acquisitions (called “combination transactions” by NCUA) between an FICU and bank.
  • All transactions require NCUA approval, and state-chartered FICUs must also obtain their state regulators’ approval. Included in that process, the proposal states, is a requirement that NCUA consider the proposed transaction’s effect on FICU members and potential FICU members. It must also consider whether the proposed transaction is in keeping with the FICU’s mission, according to the proposal. “Accordingly, the NCUA reserves the right to object to a transaction, or portions of a transaction, even absent safety and soundness concerns,” the proposal states.
  • Ensure that the directors of an FICU proposing a combination transaction understand the nature and ramifications of the proposed transaction, including how the transaction will affect the credit union’s net worth, how the credit union determined the purchase price, and how the transaction would benefit current members.
  • Amend the agency’s rule (under section 741.8) to make its provisions applicable to all asset purchases in the transaction and list the other NCUA regulations that apply to each particular type of transaction.

The proposal was approved for comment unanimously by the board.

Proposed rule: Combination Transactions with Non-Credit Unions; Credit Union Asset Acquisitions