March 26, 2021

NAFCU calls on NCUA to swiftly provide risk-based net worth relief

NCUANAFCU's Andrew Morris offered the association's full support for the NCUA's proposed rule to amend its risk-based net worth (RBNW) requirement as the relief provided by it "will enable credit unions to better prioritize service to members and support lending activities."

"The need for capital relief cannot be overstated, even as the country begins to surmount the worst effects of the COVID-19 pandemic," wrote Morris, NAFCU's senior counsel for research and policy. "The entire credit union industry has been working tirelessly to fuel the engine of economic recovery with new loans, forbearances, and other accommodations to address the hardships faced by members who have lost jobs or experienced strains on household finances for the past year. The intensity of this member-focused activity has coincided with increased pressure on net worth and risk based net worth ratios resulting from an elevated savings rate and influx of government stimulus."

The agency's proposal would define a complex credit union for purposes of the current RBNW requirement as a credit union with quarter-end assets that exceed $500 million and a RBNW requirement that exceeds six percent in advance of the 2022 effective date of the final risk-based capital (RBC) rule.

Morris said NAFCU agreed with the NCUA's assessment "that the amended threshold will better match the prospective [RBC] requirement without presenting any risk to safety and soundness." To ensure credit unions can fully realize the benefits of the relief and focus on their members' needs, Morris called on the NCUA to swiftly finalize and publish the rule.

"Credit unions are now approaching the second quarter of 2021," Morris flagged. "If the amendment is not finalized as soon as possible, the administrative benefits associated with increasing the threshold will be substantially diluted for those credit unions who must hold additional capital under the current RBNW rule and expect to remain under $500 million in assets after January 1, 2022."

In addition to offering support for the RBNW proposal, Morris identified additional opportunities for capital relief:

  • Asset threshold: Morris reiterated NAFCU's concerns for credit unions approaching the $10 billion threshold, at which point the CFPB also has supervisory authorities, as deposits have increased amid the pandemic. He offered the association's support for the NCUA's interim final rule (IFR) approved during its March board meeting that allows for additional time to prepare for heightened regulatory and supervisory demands once this threshold is hit by permitting federally-insured credit unions (FICUs) to use asset data as of March 31, 2020, for the 2021 and 2022 calendar years to determine whether the institution is subject to capital planning and stress testing supervision from the NCUA’s Office of National Examinations and Supervisions (ONES). Banking regulators have provided similar relief to community banks.
  • Prompt correct action (PCA): Morris advocated for the NCUA to reinstate and extend an IFR – which expired Dec. 31, 2020 – that provided PCA flexibility by temporarily waiving the earnings retention requirement for any FICU that is classified as adequately capitalized, and would permit FICUs to submit simplified net worth restoration plans if they attest that a reduction in capital was caused by share growth resulting from a temporary condition due to the coronavirus pandemic.

NAFCU will continue to urge the NCUA to provide credit unions with the tools and flexibility needed to effectively serve their 124 million members working to overcome the financial impact of the coronavirus pandemic.