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(From the NCUA Newsroom) – The National Credit Union Administration (NCUA) Board approved, by notation vote, an interim final rule that temporarily modifies certain regulatory requirements to help ensure federally insured credit unions remain operational and able to provide needed financial services during the COVID-19 pandemic.
“The latest round of stimulus spending has further expanded credit unions’ balance sheets. As a result, many well-run credit unions with positive earnings now have lower net worth ratios,” Chairman Todd M. Harper said. “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.”
This interim rule is substantially similar to an interim final rule the NCUA Board previously approved in May 2020, which expired at the end of that year. Due to the pandemic’s continued financial and economic disruptions, the Board determined it was necessary to reintroduce these two temporary relief measures related to earnings transfer waivers for adequately capitalized credit unions and net worth restoration plans for certain undercapitalized credit unions.
“We get it. We understand what’s happening right now,” said Vice Chairman Kyle S. Hauptman. “As credit unions continue to support their members during this difficult time, many are concerned with the challenges they will face if their net worth ratio drops below the well-capitalized level. While the latest round of stimulus is good news for many Americans, these payments accelerate the trends of unprecedented share growth in the last year. Temporarily providing relief from prompt corrective action requirements will allow credit unions to stay focused on serving members.”
“Because of the pandemic and stimulus, I am concerned that credit unions may temporarily fall below the well-capitalized level and become subject to various prompt corrective action requirements,” Board Member Rodney E. Hood said. “While this temporary relief wasn’t widely utilized last year when it expired, it now appears we need this tool now for credit unions. I thank Chairman Harper for bringing this rule forward to provide relief to credit unions of all sizes that experience a decline in their net worth ratio because of a rapid increase in shares because of the flight to safety.”
Specifically, the interim final rule makes two temporary changes to the NCUA’s prompt corrective action regulations. The first temporarily reduces the earnings retention requirement for federally insured credit unions classified as adequately capitalized.
Those credit unions unable to meet the earnings retention 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 second change temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth. 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.
These temporary measures will remain in place until March 31, 2022. The interim final rule is effective upon publication in the Federal Register, and there is a 60-day public comment period.