Hood recommends reduced capital requirements, higher MBL limit for credit unions during pandemic

Temporary reductions by 1% in the capital levels at which credit unions would qualify as adequately and well-capitalized, to provide the institutions a measure of relief during the pandemic, were among the recommendations made to lawmakers during a hearing Tuesday by federal credit unions’ chief regulator.

National Credit Union Administration Board Chairman Rodney Hood included the proposal and others in his written testimony for the Senate Banking Committee’s May 12 oversight hearing with federal financial institution regulators. Both permanent and temporary changes in statute to facilitate the NCUA recommendations were included in his testimony.

Hood’s recommendations focus on credit unions’ prompt corrective action (PCA) framework, lending standards, and, among other things, the ability of credit unions to serve underserved areas and new groups. Here’s a run-down:

  • Temporarily (during the pandemic) reduce the minimum capital requirement for federally insured credit unions to be considered well capitalized from a net worth ratio of 7% to 6%; and adequately capitalized, from 6% to 5%.
  • Grant the NCUA Board the authority to waive, for up to 180 days, the requirement of a net worth restoration plan for credit unions that are less than adequately capitalized during the pandemic.
  • Temporarily increase from $5 million to $100 million the asset threshold below which the NCUA Board can delegate decisions related to critically undercapitalized credit unions.
  • Temporarily raise credit unions’ statutory member business lending (MBL) cap from 12.25% of assets to 20%.
  • Permanently increase the federal credit union loan maturity limit from 15 years to 30 years.
  • Permanently authorize all credit union charters to apply to serve areas designated as underserved. Hood noted that only multiple common-bond federal credit unions are currently authorized to serve underserved areas. He also urged designating Opportunity Zones as underserved areas and allowing any credit union located in a designated Opportunity Zone the ability to extend services there.
  • Permanently remove or significantly amend the “reasonable proximity” requirement for select employee groups or associations seeking to become part of a multiple common-bond credit union’s field of membership.

Hood also recommended that Congress make permanent the changes recently implemented under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); and give the NCUA Board temporary authority to waive the limit, currently set at 25% of paid-in unimpaired capital and surplus, for federally chartered credit unions’ lending to other credit unions.

May 12 Senate Banking hearing materials, video

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