Posts tagged ‘NCUA’

NCUA, Gov Hochul Outline Key Spending, Supervisory Priorities

When you combine unprecedented spending by the federal government, huge bonuses for the Wall Street crowd and an economy running at inflationary speed resulting in revenue for local governments, what you end up with is an unprecedented opportunity for New York State to devise a budget which incorporates a $5B surplus.  Yesterday the Governor released her proposed spending priorities that provides the framework for budget negotiations over next year’s spending plan. 

New York’s budget process gives a tremendous amount of power to the Governor because it gives the Executive broad discretion to include legislative programs in the budget, provided they are tied to an expenditure of public funds.  In addition, the Legislature can’t simply ignore the Governor’s proposal.  It must either accept it, get the Governor to agree to amend it or override the Governor’s plan which requires a 2/3 vote of the Legislature.  This last scenario hasn’t happened since the waning days of the Pataki administration. 

We will be going through the budget for the next several days, but one proposal that we already want to highlight would increase the ability of Community Development Financial Institutions to participate in the Excelsior Linked Deposit program.  According to the memo accompanying the proposal, the legislation “amends the state finance law to include CDFIs as eligible borrowers under the Excelsior Linked Deposit program and to allow CDFIs to subsequently make loans to small businesses using funds borrowed.” [pg. 104, Part BB of this  bill]

Needless to say, this could provide one more reason for eligible credit unions to consider becoming CDFI’s.  I will keep you posted.

NCUA Outlines Supervisory Priorities

Yesterday, NCUA issued its annual guidance detailing its supervisory priorities for the coming year.  This is a must-read for anyone reading this blog. 

Credit Risk Management tops the list of concerns this year.  This should surprise no one.  Inflation is at a 40 year high, we can expect a series of interest rate hikes and we still have members struggling as a result of the pandemic economy.  Many of these trends are accentuated in New York State.  On the one hand we have members who can afford to buy houses even as housing prices have increased by as much as 20% in some areas.  On the other hand, New York City has an unemployment rate well above the national average.  If your member is a bartender, waiter or hotel worker, they are still struggling.  Make sure you have reasonable policies in place so you can demonstrate to your examiners the steps you are taking to help struggling members while ensuring that your credit union has the resources to withstand sudden changes to the economy. 

On that note, enjoy your day.  Have fun keeping all those balls in the air.

January 19, 2022 at 9:27 am Leave a comment

RBC Reg Highlights End of Year Conclave

Like all those college kids rushing to get their term papers in, even though they had the entire semester to work on them, the NCUA Board’s last meeting of the year included the approval of next year’s budget, and a range of regulations dealing with subordinated debt, mortgage servicing rights and risk based capital.  The risk based capital (RBC) regulation is the one I find the most intriguing. 

First, for those of you nowhere near $500M in assets, you do not have to worry about a word of what I am about to say.  Since 2013, NCUA has worked on developing an enhanced RBC framework for federally insured “complex credit unions.”  The rule was originally finalized in 2015.  This has been quite the saga.  Along the way, we have seen debates over what constitutes a complex credit union, the legal authority for NCUA to implement this framework, the policy rationale of its supporters, and ultimately, when it should take effect.  I am here to report that all these debates are finally over.  Starting on January 1, 2022 the RBC rule will take effect.

This is big news in itself.  This means that federally insured credit unions with $500M or more in assets must either abide by a the RBC framework or opt in to a complex credit union leverage ratio (CCULR) which the NCUA just approved yesterday.  Under this alternative framework, credit unions otherwise subject to the RBC requirement will have to meet increased capital requirements of 9% or more.  Effectively, NCUA is giving complex credit unions the option of either complying with the enhanced RBC framework or stash away more capital.  Of course, this is a simplistic overview and someone on your team should be taking a break from holiday merriment to go over the nuances of this new framework as well as assess the impact that last second changes to some of the risk ratings could have on your credit union.

What surprises me so much about yesterday’s announcement is not that this regulation was finalized but that NCUA is so determined to get the RBC framework up and running that it is going to take effect without a further delay.  Keep in mind, however, that your credit union is not bound by its initial decision.  You can opt in and out of the competing frameworks on a quarterly basis.

On that note, yours truly must get on with the rest of his day.  I still can’t believe that Christmas Eve is next Friday.  Don’t tell my wife I haven’t gotten her present yet.

December 17, 2021 at 9:20 am Leave a comment

Does FDIC’s Dysfunction Hold Lessons For The NCUA?

Today I am turning the tables on Dr. Keith Leggett, who retired from blogging about credit union issues for the American Bankers Association in July 2020, to shine a light on recent dysfunction among bank regulators that holds important lessons for the NCUA.

The FDIC is overseen by a five-member Board including, Chairman Jelena McWilliams, Martin J. Gruenberg, Michael J. Hsu, and Rohit Chopra; there is also one vacancy.  Currently three of its members are democratic appointees, including Mr. Chopra who serves on the Board by virtue of being the CFPB’s Director.  Ms. McWilliams is a Trump appointee who is serving out a five year term as Chairman.  By tradition, the Chairman has always set the agency’s agenda. That tradition is now under attack.

This past Thursday, Mr. Chopra announced that the FDIC was considering regulations to strengthen oversight of consumer protections as part of bank merger approvals. The problem is that FDIC Chairman McWilliams did not agree to put this item on the agenda.

The resulting kerfuffle has now gotten the attention of the regulated. State banking associations across the country, including the New York Bankers Association, have written a letter to the FDIC in which they explained that

Multi-member boards and commissions are designed to bring together different points of view. Policies certainly change over time. That is understood and expected. But collegiality and a shared responsibility for maintaining market stability historically have overcome the forces that push and pull at non-independent agencies, allowing for gradual change.” 

If all this sounds familiar to you, it is because NCUA Board members Rodney Hood and Kyle Hauptman have implicitly advanced similar arguments in placing items opposed by Chairman Harper on NCUA’s agenda.

Now the regular blog has ended and yours truly is going to jump on his high horse and go outside his lane a bit. When it comes to both the FDIC and NCUA, good arguments can be made that the majorities have the authority to take the steps they have taken. But what we are seeing is yet another example of a partisan divide that is so severe that the extremes on both sides are willing to overlook common sense norms in pursuit of their respective agendas. Democracy doesn’t work simply because people follow the law. It is also essential that both sides are willing to adhere to basic traditions that effectively fill in the blanks on the issues that laws don’t address.

Common sense tells you that agencies can’t function unless their directors has control over the direction the agencies choose to go and are kept in check by their fellow board members. In other words, what is taking place at the FDIC and to a lesser extent the NCUA is another example of how democratic norms are fraying. In the short term, this dysfunction helps one side advance proposals that would otherwise not see the light of day. But in the long term, dysfunctional government is in no one’s interest.

December 14, 2021 at 10:45 am Leave a comment

The Cryptocurrency Train is Leaving the Station, Will Credit Unions be Onboard?

Good morning, folks.  The American Banker reports this morning that VISA is nudging banks and credit unions to expand their cryptocurrency options for members using their network. 

Visa on Wednesday launched a crypto advisory service that’s designed to help the company’s banks and credit unions further their cryptocurrency strategies.” 

If this blog sounds somewhat redundant, it’s because I blogged recently about a similar announcement by MasterCard. 

There are two key components involved in this trend that the industry has to more aggressively deal with than it has to date.  First, it is important to underscore precisely why VISA and MasterCard are going to get increasingly aggressive in coaxing the industry into the cryptocurrency space. 

At its core, cryptocurrency is about using technology to facilitate efficient black and white financial transactions without a middle man.  In other words, the increasing use of cryptocurrencies is a direct threat to the VISA and MasterCard business model.  The sooner they integrate themselves into the cyber network by ensuring that members can conveniently access cyber currencies through their networks, the less likely members are to go through the hassle of setting up their own digital wallets. 

Secondly, yours truly remains more than a little concerned about how methodically the NCUA is going about providing guidance for credit unions engaging with this space.  For example, this fall it requested credit union feedback on issues related to cryptocurrencies and I am hoping this means that we can expect additional guidance next year.  In contrast, the OCC has written three interpretive letters to banking institutions providing guidance on various aspects of cryptocurrency banking.  Most importantly, it recently issued a letter summarizing the guidance and explaining that while banks can go forward in this area, they should do so only after informing their regulators of their intentions.

If anything, cryptocurrency issues will probably be even more challenging for credit unions because of Field of Membership concerns and the asset size of many of our credit unions.  Still, for better or worse, and I believe mainly for worse, all the cool kids are doing it and it’s time to get the regulatory framework in place.

December 9, 2021 at 9:08 am Leave a comment

Climate Change is Bad: Now What?

As yours truly read through the Financial Stability Oversight Council’s (FSOC) climate risk report yesterday, I was bracing for a series of absurd mandates in which credit unions would have to join larger more sophisticated institutions in complying with a host of new requirements, and yet another loss by the New York Giants. I was pleasantly surprised on both counts. The report is an exercise in bureaucratic reasonableness, which gives NCUA plenty of flexibility to respond appropriately and not hysterically to the threats posed by climate change to the credit union industry.

The FSOC is comprised of 10 voting members, including the NCUA, and five non-voting members representing interested stakeholders such as state regulators. Its goal is to identify emerging risks within the financial system. At the time of its creation, there was a debate as to whether or not credit unions should even be included in a group which represented investment banks, the largest depository institutions in the world and the Securities and Exchange Commission.

When I heard that it was going to come out with a climate change risk report mandated by an executive order, I expected to see the outline of new regulations which would impose new reporting requirements on credit unions of all shapes and sizes. The report got the headline it was looking for when it proclaimed that climate change is an emerging and increasing threat to financial stability. But, the resulting action items included the following language:

“As part of their supervisory activities, the depository institution regulators expect to review within traditional prudential risk categories, as relevant, how effectively institutions incorporate climate-related financial risks into their risk management systems and frameworks, appropriate to their size, complexity, risk profile, and location.”

The biggest action item in the report is for bank regulators to augment their existing staff and develop greater expertise when it comes to assessing climate change risk. 

For its part, NCUA explained how it has established a series of working groups to address climate change. Its “ultimate goal” is to ensure that the system remains resilient in the face of climate related risk.

You can recognize climate change for the threat it is while also questioning the value of imposing additional mandates on depository institutions which do not engage in the type of activity that can mitigate climate change’s worst effects on a systemic level. If the FSOC’s report represents the approach ultimately taken by the NCUA and other depository regulators, we can all breathe a sigh of relief.

October 25, 2021 at 8:54 am Leave a comment

Key Risk Based Capital Requirements to Be Proposed Next Thursday

I have some potentially good news for credit unions with $500 million or more in assets.

As readers of this blog already know, starting on January 1st credit unions over this threshold must start complying with risk based capital requirements intended to ensure that NCUA appropriately accounts for the capital risks of complex credit unions under its PCA framework. Up until May, the NCUA was receiving feedback from credit unions on how this requirement might be modified. Remember, not one of the three board members currently serving at NCUA was even around when this new framework was put in place way back in 2016.

Under a risk based capital framework, financial products are given risk weights. So for example, a credit union holding a disproportionate number of 30 year mortgages would have a different risk rating than a credit union with the same level of assets that specializes in car loans. We will know by next Thursday what approach NCUA has decided to take when it comes to simplifying these new capital requirements. One approach would implement a risk based leverage ratio framework. Very generally, this framework would establish certain risk factors that would trigger additional capital buffer requirements. A second approach would implement a so-called complex credit union leverage ratio. Again, very generally speaking this approach would allow credit unions to satisfy risk based capital requirements by putting aside a greater amount of capital than would otherwise be necessary under NCUA’s existing risk based capital framework.  Credit unions would be able to opt in and out of this framework.

Irrespective of what approach NCUA decides to take it is time to give impacted credit unions a clear compliance framework. There is much work to be finalized in the coming months. NCUA is cutting this closer than a college kid who put off his big term paper to a day before the quarter ended. On that note, enjoy your weekend.

July 16, 2021 at 9:25 am Leave a comment

Is the Fed Squeezing Small Lenders Out of Existence?

Good Morning, folks.

In the 1930’s the Federal Government responded to the collapse of the farming industry by putting in place a government back framework meant to stabilize the farming industry and stem the impact it was having on everyday Americans. Today, the family farm is largely a relic of a bygone era but the government subsidies designed to keep it alive are still alive and well and disproportionately benefiting larger corporations that don’t need the money.

Many of the same trends are taking hold in the banking industry to the detriment of credit unions.

I’m not going out on much of a limb here to say that you should expect your credit union to have to pay more into the Share Insurance Fund in approximately six months. That’s my takeaway from NCUA’s report on the Share Insurance Fund provided at yesterday’s monthly board meeting. It is also the assessment of one Todd Harper who put credit unions on notice that “absent some unknown external event, these forces seem likely to eventually” push the equity ratio below the 1.20 level at which point NCUA must pass around the Share Insurance Hat.

This unfortunate development isn’t all that surprising. This past week many New York credit unions have had the opportunity to listen to Steve Ricks pithy overview of current credit unions economic trends. Members are stocking away savings at unprecedented levels thanks to all of that government stimulus spending. The bad news is that loan demand isn’t keeping pace and investment returns are non-existent. Put this all together and you have the profits of many credit unions, particularly smaller ones, being squeezed even more than they have been in the past. Perhaps as the economy picks up even more, so will loan demand. We will have to wait and see.

But let’s take a look at the big picture. The trend we are seeing is nothing more than the continuation of forces put in place by the Federal Reserve more than a decade ago. When the mortgage meltdown looked as if it might trigger a depression, even Janet Yellen explained that, while she was empathetic to the difficulties faced by community banks, the economy as a whole benefitted from the stimulus resulting from historically low interest rates.

At the time this argument made sense. But by continuing to take extraordinary steps to suppress interest rates, the Fed’s intervention is feeling more like a permanent lifeline to large banks then a short-term necessity. As someone who believes in the free market this doesn’t feel like a fair competition.

May 21, 2021 at 12:48 pm Leave a comment

Untangling the Mortgage Mess

In the immortal words of William Shakespeare “Oh, what a tangled web we weave when we try to mess up the regulatory agenda of the incoming administration”. 

Over the last few months yours truly has been hesitant to talk too much about changes to the Qualified Mortgage regulations since the rules are as likely to take effect as Joe Biden is to be endorsed by a coal miner union.  But, those of you who originate mortgages for sale to the GSEs are experiencing one of the most confusing periods of regulatory uncertainty in more than a decade.  It is beginning to have some real consequences.  Here is some background. 

Dodd-Frank mandated that the CFPB promulgate regulations defining a Qualified Mortgage. As readers of this blog also know, Dodd-Frank also stipulated that mortgages purchased by Fannie Mae and Freddie Mac would also qualify for Qualified Mortgage protections.  This exemption was only expected to last as long as Congress figured out what to do with the GSEs, or January 10, 2021.  The CFPB finalized regulations late last year eliminating the QM patch and amending the general QM regulations.  Under these new regulations qualified mortgage designation would be determined based on a mortgage’s APOR.  The Bureau issued a final rule to amend the General QM definition in December of 2020. This rule took effect on March 1, 2021 and has a mandatory compliance date of July 1, 2021. 

To the surprise of absolutely no one, the new leadership at the CFPB announced that it was considering making changes to the revised QM definition.  It has proposed extending the compliance deadline until 2022.  In the ensuing months it will undoubtedly be coming up with a new QM definition. 

But here is where the deal gets even more complicated.   Remember back in 2008 when the federal government had to bail out Fannie and Freddie for fear of triggering a Great Depression?  As part of that bailout, a conservatorship was created for the GSEs and since that time the Treasury has imposed contractual obligations on the GSEs in return for the hundreds of billions of dollars they received from the American tax payer.  (We don’t like using this term in America, but Fannie and Freddie have been nationalized.)  This agreement was recently amended.  Under this agreement, as things currently stand, the GSEs are obligated to begin implementing the new APOR standard on July 1st.  This means that even though the CFPB has already signaled its intention to reconsider the new QM definition, lenders that work with the GSEs have to start preparing new policies and procedures for the July 1st deadline.

Against this sordid backdrop, CUNA yesterday issued this letter urging the Treasury to promptly remedy this situation.  As CUNA noted, forcing the GSEs to implement these changes “would be unnecessary, wasteful, and ultimately harmful for consumers as the implementation cost may also increase the cost of credit.”

It is hard to underestimate the man hours involved in preparing for these types of major changes.   

Let’s hope this glitch gets resolved quickly before all of this confusion begins to have practical consequences. 

NCUA Meeting Recap

Here is NCUA’s recap of yesterday’s Board meeting.  Remember that the Board already approved the interim regulations giving credit unions greater PCA flexibility.

On that note, enjoy your weekend.  Let’s hope it gets warmer. 

April 23, 2021 at 10:28 am Leave a comment

Is Your CU Eligible For ECIP?

On Thursday the Treasury unveiled regulations and guidance implementing the Emergency Capital Investment Program (ECIP) which sets aside $9B to invest in Community Development Financial Institutions (CDFI’s) and Minority Depository Institutions (MDI’s) which can use the money to assist communities negatively impacted by the pandemic.  It has created a lot of interest in CU Land because of its extremely attractive terms.  Funds provided to CUs under the program are interest free for the first 24 months. The program however is trickier than it appears, particularly as it relates to secondary capital.

 To be eligible for funding, your credit union must be either a CDFI or a MDI.  This means that even if your credit union has become a Low Income Credit Union (LICU) it does not qualify to participate for these loans.

Congress created the program in the second round of stimulus funding in December. Under Section 104A the program was created   

“…to support the efforts of low- and moderate-income community financial institutions to, among other things, provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities, including persistent poverty counties, that may be disproportionately impacted by the economic effects of the COVID-19 pandemic, by providing direct and indirect capital investments in low- and moderate-income community financial institutions.”

With this charge it is still not entirely clear how the treasury will decide how much $ eligible FIs will be awarded.

Here is where I will get a little into the weeds.  If a credit union does qualify for funding under the program your credit union will still have to be eligible for and be approved by NCUA to have the funds classified as Secondary Capital.  Otherwise it will reduce your net worth ratio.  These funds are not being set aside for financially struggling institutions they are being set aside for financial institutions in financially struggling communities.  

What regulations apply in making a secondary capital classification request?  Good question.  As readers of this blog know NCUA has approved regulations basically replacing secondary capital with subordinated debt.  However, these new regulations don’t become effective until next year.  Credit unions should follow the existing secondary capital regulations, paying special attention to this detailed and, in my ever-so-humble opinion, overly burdensome guidance on secondary capital.

Vaccine Eligibility Expansion

As you may have heard, and judging by the number of emails on the subject, many of you did, the Governor announced yesterday that vaccine eligibility would be expanded to include:

  • Public-facing government and public employees
  • Not-for-profit workers who provide public-facing services to New Yorkers in need
  • Essential in-person public-facing building service workers

At this point we are just dealing with a press release.  The Association has reached out for clarification on precisely which employees are going to be included in this expansion and once we get additional information we will pass it on.   

March 10, 2021 at 9:08 am Leave a comment

Four Key Issues to Know As You Start Your Credit Union Day

This morning has provided your faithful blogger with a treasure trove of important tidbits to pass on to you as you begin your credit union day. So with the caveat that many of these issues are worthy of future expansion, here goes…

Wells Fargo Folds and Settles Patent Litigation

In one of the highest-profile patent litigation cases in more than a decade, according to Law360, Wells Fargo has agreed to pay $300 million to USAA to settle claims that it violated patents related to remote deposit capture technology. The litigation was seen as a key bellwether of the extent to which financial institutions would have to enter into licensing agreements regarding this technology. Yours truly is no patent attorney, but this announcement should trigger a call to your legal counsel to discuss next steps for your credit union, particularly if it has been subject to a letter from USAA requesting that it license its RDC technology. 

Biden Administration Announces Additional Mortgage Forbearances

The Biden Administration announced yesterday that it was extending mortgage forbearance opportunities for certain government-backed mortgage loans. As a result of the announcement, the Department of Housing and Urban Development, the VA and the Department of Agriculture will extend mortgage forbearance and foreclosure relief, which were otherwise due to expire in March, until June 30th of 2021. Similar steps were recently announced by Fannie Mae and Freddie Mac. New York State has also extended forbearances for non-federally backed mortgage loans for individuals impacted by COVID-19. Let’s hope that the additional stimulus that Congress is expected to provide to consumers will allow policymakers to phase out these protections by the end of this year. Believe it or not, a properly functioning mortgage lending system is in the best interest of consumers.

New York’s Department of Financial Services Issues Cybersecurity Fraud Alert

The DFS issued a cybersecurity fraud alert informing its regulated entities that it has “recently learned of an aggressive campaign to exploit cybersecurity flaws in public facing websites to steal non-public information.” Although the guidance primarily focuses on websites designed to give consumers quick insurance quotes, the DFS is also reporting that similar attacks have been lobbed against mortgage companies. The focus of these threats is apparently to steal information such as licenses, which consumers are sometimes asked to provide when getting instant quote information. DFS is reporting that at least some of the stolen information is being used to engage in fraudulent attempts to obtain pandemic-related unemployment benefits in New York. Remember, under New York’s cybersecurity regulation (NYCRR 500.1 (g)), information that is considered “non-public” includes a name, number, personal mark or other identifier which can be used in conjunction with a social security number, drivers license, account, credit or debit card number in identifying an individual. Incidentally, you should pass this on to your vender to make sure they are aware of your New York State-based obligations. 

NCUA IG Investigates Consumer Complaint Process

As many readers of this blog know, Board Chairman Todd Harper supports increasing NCUA’s scrutiny of credit union compliance with consumer protection laws. Many individuals, including your faithful blogger, have questioned what evidence there is that compliance with consumer protection laws is lacking within the industry. An esoteric report recently issued by the inspector general investigating NCUA’s complaint review process may take on exaggerated importance in this debate. I haven’t read the entire report yet, but the inspector general is suggesting that NCUA should do a better job of making sure that examiners are aware of complaints issued against a credit union. 

On that note, enjoy your day. I would also like to extend a special thank you to the Buffalo Sabres. Two nights ago, my NY Islanders did not surrender a single shot on goal to the Sabres. This was the first time the Islanders had ever shut a team out this way since they started in the early 70s. In the immortal words of Wayne Gretzky, “you miss 100% of the shots you don’t take.”

Image result for michael scott wayne gretzky

February 17, 2021 at 10:02 am Leave a comment

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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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