Agency extends temporary provisions giving reg relief to credit unions seeing savings surges during pandemic

Temporarily reducing the earnings retention requirement for credit unions classified as adequately capitalized, and permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth during the coronavirus crisis, is the aim of an interim final rule adopted by the federal credit union regulator’s board and announced Friday.

The interim final rule takes effect immediately; the vote also keeps the temporary measures in place until March 31, 2022.

In a release, the National Credit Union Administration (NCUA) said its board adopted the interim final by notation vote, although it did not say when the vote was taken. (On Thursday, in the board’s publicly published agenda for its meeting next week [April 22], the board listed as an item a briefing on an interim final rule under Part 702 of the agency rules and regulations, dealing with capital adequacy/prompt corrective action [PCA]).

Last May, the board issued an interim final rule that waived the earnings retention requirement for “adequately capitalized” credit unions and eased net worth restoration plan requirements for some “undercapitalized” credit unions. That rule, approved with an expiration date of Dec. 31, 2020, was intended to help ensure that federally insured credit unions (FICUs) remained operational and liquid during the COVID-19 crisis.

In some respects, the latest action by the board is an extension of last year’s interim final rule; the NCUA called it “substantially similar” to that regulation. The agency said that due to the pandemic’s continued financial and economic disruptions, it was necessary to reintroduce the two temporary relief measures.

Under the first provision – reducing the earnings retention requirement for credit unions classified as adequately capitalized – the NCUA said those credit unions unable to meet the requirement will not have to submit a written application requesting approval to decrease their earnings retention amount.

“However, if a credit union either poses an undue risk to the National Credit Union Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA Regional Director may require the credit union to submit an earnings transfer waiver request,” the agency said.

Under the second provision – permitting an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth due to the crisis – if a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.

In a statement, NCUA Board Chairman Todd Harper said the changes reflect the impact of the influx of savings by members into their credit unions from stimulus payments and other scources. “The latest round of stimulus spending has further expanded credit unions’ balance sheets,” Harper said. “As a result, many well-run credit unions with positive earnings now have lower net worth ratios. Given the continued uncertainty with the pandemic and share growth many credit unions are seeing, this targeted, tailored and temporary rule will provide critical relief so eligible credit unions can focus their limited resources on their members’ needs instead of planning for earnings transfers and developing detailed net worth restoration plans.”

The interim final rule has a 60-day comment period, ending on June 18.

Temporary Regulatory Relief in Response to COVID-19 – Prompt Corrective Action

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