Part 702 – Capital Planning and Supervisory Stress Testing

Final Rule Summary
Prepared by NASCUS Legislative & Regulatory Affairs Department
July 2018

NCUA has issued a final rule amending its capital planning and stress testing for federally insured credit unions with $10 billion or more in assets (covered credit unions). The final rule groups covered credit unions in three tiers reflecting the covered credit unions’ size, complexity, and financial condition. Under the final rule, credit unions with greater than $10 billion in assets, but in the lowest Tier, would generally be exempted from stress testing. Credit unions in the lowest 2 Tiers would continue to develop capital plans but no longer submit those plans to NCUA for approval. Also, under the final rule, covered credit union subject to stress testing would conduct their own stress tests rather than having NCUA conduct the tests.

The final Capital Planning & Stress Testing rule is available here. The rule took effect on June 1, 2018.

Summary
As noted above, the final rule creates three Tiers for covered credit unions as follows:

 

Tier I Asset Size

 

$10 billion – less than $15 billion

 

Tier II Asset Size

 

$15 billion – less than $20 billion

 

Tier III Asset Size

 

$20 billion or greater

Under the final rule, Tier I credit unions would face the minimum capital planning requirements, with Tier II credit unions facing more stringent requirements, and Tier II credit union subject to the most robust capital planning and stress testing requirements.

Covered credit unions are assigned to a Tier based upon their assets as of March 31 each year. A credit union passing into the next Tier would have to comply with that Tier’s requirements the following year.

Capital Planning
Pursuant to the final rule, Tier I and Tier II credit unions must develop and maintain annual capital plans, but no longer must submit those plans to NCUA for approval. NCUA would review the capital plans in the course of its regular supervisory oversite of Tier I and Tier II credit unions.

NCUA will continue to require Tier III credit unions to develop annual capital plans and submit those plans to NCUA for approval each year by May 31. If NCUA rejects the capital plan, the Tier III credit union has until November 30 of the same year to resubmit an amended capital plan. The Tier III credit union also has the option of appealing the rejection of the capital plan through the Supervisory review Committee process.

 

Tier I & II Credit Unions

Annual Capital Plan Required

Based on financial data w/in 2 quarters of plan completion

Capital Plan is not submitted to NCUA, but is reviewed in course of normal supervision

 

Tier III Credit Unions

Annual Capital Plan Required

Based on December 31 data of previous year

Capital Plan submitted to NCUA by May 31 with NCUA accepting or rejecting submitted plan by August 31 of each year

Stress Testing
NCUA will now permit covered credit unions to conduct their own stress tests rather than mandating NCUA conduct the test. Tier I credit unions will not be subject to stress testing. Starting at $15 billion, Tier II and Tier III credit unions will be required to conduct annual stress tests, and incorporate the stress test scenarios into their capital plans. In addition, Tier III credit unions must demonstrate 5% stress test capital level or submit a remediation plan to NCUA.


Tier

Stress Test Required

Stress Test Incorporate into Capital Plan

5% Stress Test Capital Requirement

Tier I Credit Unions

 

No

 

NA

 

NA

Tier II Credit Unions

 

Yes

 

Yes

 

No

Tier III Credit Unions

 

Yes

 

Yes

 

Yes

 

7/10/18