Dec. 2, 2016
NCUA notes premium range could change
Although it is projecting a combined stabilization fund assessment and National Credit Union Share Insurance Fund premium range of between 3 to 6 basis points in 2017, NCUA also indicates that – “in the event of an extraordinary change in economic condition” or “material failure of a large credit union” -- actual premium needs in 2017 could vary significantly from the projected range. In a Letter to Credit Unions (16-CU-10) issued this week NCUA stated that the range results only from an insurance fund premium, and that (at least for now) the agency projects no assessment range for the Temporary Corporate Credit Union Stabilization Fund. However, additional information about the stabilization fund, and the NCUA Guaranteed Notes Program, will be provided at the Dec. 15 NCUA Board meeting, the letter states. “Notwithstanding a major, unexpected development, such as a severe economic downturn, the Stabilization Fund assessment is expected to be zero for 2017,” the letter states. “However, if adverse conditions develop, the NCUA Board may have to reconsider an assessment,” the letter adds.
Further, the agency makes it clear that credit unions should not expense any premium or assessment until either is actually declared by the board. The letter also emphasizes that credit unions should not use the projected premium range as the basis for any accruals of future expenses.
The NCUA Board heard a briefing at the November board meeting, at which staff of the Office of Examination and Insurance recommended a share insurance premium for 2017 because growth in insured shares in credit unions, combined with a continuing low interest-rate environment, is resulting in a slow decline in the insurance fund’s equity ratio – which likely won’t recover as the year goes on. According to NCUA’s analysis, “the present low interest-rate environment makes it difficult to generate sufficient retained earnings to bring the equity ratio back to 1.30%,” which (since 2007) has been set as the “normal operating level” of the insurance fund. By law, the normal operating level for fund must fall between 1.20% and 1.50%.
NASCUS is preparing a summary of the insurance premium/stabilization fund letter. In the meantime, NASCUS has also pointed out that a premium is unrelated to a decrease in the overhead transfer rate (which the board agreed to at last month’s meeting; the first such decrease since 2013). NASCUS estimates that with the OTR decreasing from 73.1% in 2016 to 67.7% in 2017, an additional $15 million is saved and potentially available to contribute toward the fund’s equity ratio.
GUIDANCE FOR NEW MBL RULE PUBLISHED ONLINE …
In another letter this week, the agency announced that its examiners’ guidance for the new member business loan (MBL) rule is open for public use as part of the agency’s online examiners guide. In LTCU 16-CU-11, NCUA Board Chairman Rick Metsger noted that the new rule (which takes effect Jan. 1, just five weeks away) “is designed to provide greater flexibility to credit unions to meet the needs of their members through prudent risk-management practices.” He also noted that the agency continues to emphasize that credit unions which engage in commercial lending activities “need to have the people, processes, and policies in place to ensure the safety and soundness of their operations.”
Metsger stated that the examiner guidance – considered critical by credit union practitioners and supervisors in how the agency will approach the new “principles-based” rule -- “will help credit unions understand NCUA’s supervisory expectations for sound commercial risk-management practices.”
Although the new rule takes effect in January, its implementation has been challenged by a bankers’ group (the Independent Community Bankers of America (ICBA)), which has asked a federal court to invalidate and set aside a provision the new rule that allows federally insured credit unions to exclude purchased commercial loans or participations in such loans from the aggregate cap on MBLs. NCUA has responded to (and discounted) the bankers’ complaint, as have the two largest national credit union trade groups (Credit Union Natl. Assn. and Natl. Assn. of Federal Credit Unions).
NASCUS will be reviewing the guidance over the next few days, and ultimately develop a summary.
… AS MBL SCHOOL IN NASHVILLE FILLS TO CAPACITY
Perhaps as a sign of overall credit union system interest in the new business/commercial lending rule, the NASCUS MBL School in Nashville (next Tuesday and Wednesday) reached its registration capacity this week (essentially: sold out). The two-day program features a number of key speakers, including Vince Vietan, NCUA Senior Credit Specialist, whose responsibilities at the agency include developing agency regulation, policy, examination guidance, and examiner training to address credit unions’ business and commercial lending activities.
FORMER CHAIRMAN, STATE REGULATOR TAPPED AS TRANSITION LIAISON TO NCUA
A familiar face is in the position of transition liaison between the incoming Trump administration and the NCUA: Former Board Member/Chairman Mike Fryzel. He was NCUA chairman from 2008-09, and served on the board until 2014. In addition to his experience at the agency, Fryzel is also a former state regulator, serving as director of the Illinois Department of Financial Institutions (DFI), as well as a supervisor/administrator of three of the four agency divisions. He also held other positions in state government, including in the staff of the legislature and in the judicial branch. A financial services consultant, Fryzel is serving the transition as a volunteer.
SUMMARY OUTLINES CFPB GUIDANCE ABOUT INCENTIVE PROGRAMS
A CPFB bulletin outlining compliance management steps that supervised entities should take to mitigate risks posed by production incentives (among other things) is summarized by NASCUS. In particular, the summary notes the risks to consumers of incentive programs as emphasized by the bulletin, and details examples of the risks that problematic incentive programs pose. The NASCUS summary also outlines the bureau’s expectations of supervised entities with regard to incentive programs, noting that CFPB expects the entities to “institute effective controls, which include oversight of both employees and service providers.” The summary points out that CFPB wants entities to have a “robust” compliance management system (CMS) in order to detect and prevent violations of federal consumer financial law.
BRIEFLY: CDFI exam instruction summary; comments, PICUs in FHLB
Instructions to NCUA examiners about the supervision of credit unions recognized as community development financial institutions (CDFIs) is outlined in NCUA Supervisory Letter 16-01, which NASCUS has summarized and posted (members only) … Eight comments were filed – all generally in favor – to a proposed rule by the Federal Housing Finance Authority (FHFA) to conform its rules allowing privately insured credit unions to join the Federal Home Loan Bank system. The 60-day comment period ended Nov. 28. Legislation was enacted last year authorizing state credit unions with private share insurance instead of federal share insurance to become FHLB members. This proposed rule also would make appropriate conforming changes to FHFA's membership regulations.
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974