NCUA Proposes Net Worth Mandate Relief

January 15, 2021 at 10:01 am 1 comment

In a deceptively busy day in the world of regulatory and legal oversight, the NCUA moved to provide credit unions with $50 million or more in assets with an intriguing form of mandate relief; entered into an agreement with the CFPB about the supervision of the growing number of credit unions eclipsing the $10 billion asset threshold; after much delay, is proposing to add a new category to the CAMELS rating system; and is proposing to grant additional authority to CUSOs. Of all these developments, the one which intrigues me the most has to do with the incredibly arcane but vitally important world of risk-based net worth and capital requirements, so grab an extra cup of coffee and join me as I dive into the weeds.

The key to understanding yesterday’s regulatory proposal is to keep the distinction between Risk-Based Capital (RBC) and risk-based net worth requirements straight. All credit unions are subject to the Prompt Corrective Action (PCA) framework. Federal law also requires, however, that NCUA have a more complex capital framework for “complex” credit unions. For more than two decades, federal law has given NCUA the authority to define what makes a credit union complex, and currently, credit unions with $50 million or more in assets still qualify for the complex distinction. This means that they have to comply with both baseline PCA requirements as well as the risk-based net worth requirements. In 2015, NCUA opened a whole new can of worms when it updated the risk-based net worth requirement to include a Risk-Based Capital requirement. Originally, NCUA simply increased the threshold to $100 million for the complex credit union distinction where it previously required “assets that exceed $50 million and its risk-based net worth requirement exceeds six percent.” As things stand today, if your credit union has $500 million or more in assets, it will be subject to the RBC requirements starting in January 2022. 

What does this mean for credit unions with more than $100 million in assets but less than $500 million, which are still subject to the erstwhile risk-based net worth requirements? This brings us to yesterday’s NCUA Board Meeting. Among the proposals put forward by Rodney Hood in the waning days of his Chairmanship is a proposal to raise the asset threshold for compliance with the risk-based net worth threshold from $100 to $500 million. The rationale for this increase is to maximize the amount of capital credit unions have on hand to lend out as the economy continues to reel from the impact of the pandemic. With or without a pandemic, it’s past time we recognize that a $100 million credit union shouldn’t be subject to the same requirements as a $500 million credit union. 

On that note, enjoy your weekend with a special shout out to you Buffalo Bills fans as you tune in Saturday night to watch the best football game of the week. 

Entry filed under: Compliance, Economy, Federal Legislation, Regulatory. Tags: , , , , .

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1 Comment Add your own

  • 1. Credit Repair  |  January 20, 2021 at 2:48 am

    At least the requirements will start on 2022 hopefully by that time pandemic is gone

    Reply

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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