Credit union regulator readies final rules on bank purchases, mitigation of CECL impact

New rules for credit unions governing their purchases of banks and mitigating the impact of the current expected credit loss (CECL) accounting standard are slated for action as soon as this month by the federal credit union regulator, according to the spring 2021 regulatory agenda published late last week by the agency.

According to the agenda, published by the White House Office of Management and Budget (OMB) following input by the National Credit Union Administration (NCUA), the credit union regulator is preparing to finalize (perhaps this month; the agency’s board meets next week) a final rule on “combination transactions with non-credit unions; credit union asset acquisitions” (commonly referred to as credit unions purchasing banks). The proposal was intended, according to the NCUA, to clarify and make transparent procedures and requirements used by the agency when evaluating a purchase by a credit union of a bank or other non-credit union institution.

When the NCUA made the proposal in January 2020, it noted that credit union acquisitions of banks – which, historically, have been rare occurrences – had seen a recent uptick. For example, the proposal included 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.

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.

Another rule that could be finalized this month, the spring agenda indicates, is one intended to mitigate the day-one effect of the CECL accounting standard on capital levels at credit unions. Under the proposal, a phase-in period of three years would be established for the day-one adverse effects on credit unions’ regulatory capital under the CECL accounting standard. However, smaller credit unions (those with $10 million or less in assets) would be exempted from having to use the standard to figure loan loss reserves.

Other rules or actions that could be considered by NCUA over the next several months, as indicated by the spring agenda, include:

  • A proposed rule to integrate an NCUA equivalent (the Complex Credit Union Leverage Ratio, CCULR) to the community bank leverage ratio (CBLR) into NCUA’s capital standards, perhaps as soon as next month. The CCULR is modeled on the bank ratio adopted by federal banking agencies in 2019, which removes requirements for calculating and reporting risk-based capital ratios for most banks with less than $10 billion in assets, more than 9% in risk-based capital, and that meet certain risk-based qualifying criteria. Banks meeting the criteria can “opt-in” to use the CBLR.
  • A final rule (as soon as September) updating the CAMEL exam rating system, including adding an “S” (for “sensitivity to market risk”). The proposal would allow credit union exams to include a specific look at market risk sensitivity. Tandem with this would be a modification in the review of credit union liquidity and asset/liability management, with the “L” in CAMEL (CAMEL also covers Capital, Asset quality, Management, and Earnings) modified to address liquidity risk. The proposal would bring the NCUA’s rating system up to date with a change that banking regulators incorporated decades ago and satisfy a recommendation the agency’s inspector general has been recommending for about the past five years.

OMB Agency Rule List – Spring 2021 (NCUA)

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