Long Awaited New Final Rule for Corporates Approved by NCUA Board

Sept. 27, 2010 — After nearly two years of rulemaking, the National Credit Union Administration (NCUA) approved a final rule instituting changes for the corporate credit union system.

The final rule revises Part 704 particularly impacting capital standards, investments, asset liability management, corporate CUSO activities and governance. It also makes conforming amendments to Parts 702, 703, 709 and 747 of NCUA's rules.

Over the past two years, NASCUS and state regulators worked with NCUA as it re-promulgated the regulations, and the final rule reflects state regulators' influence especially in terms of consultation with state regulators on state-chartered corporates on capital and corporate CUSO activities.

"NASCUS commends the agency for completing the enormous and complicated task of stabilizing the corporate credit union system and re-promulgating its corporate rule," said NASCUS President and CEO Mary Martha Fortney. "From the start, state regulators and NCUA worked to address corporate credit union issues in an equitable fashion that protects safety and soundness with a focus on enhanced joint federal-state regulator supervision. NASCUS and state regulators anticipate continuing their active role as the final rule is implemented."

Regarding capital standards, the final rule imposes new minimum capital ratios, new risk based capital calculations and new elements of capital, all generally in accordance with the Basel I capital requirements imposed for banks. It also toughens capital requirements for expanded investment authority and restricted the credit ratings for investments purchased by corporates to a minimum of "A-." Further, corporates will be subject to prompt corrective action (PCA).

The final rule requires all corporate CUSO activities to be approved by the NCUA, and by the state regulator in the case of a state-chartered corporate. It also requires all corporate board members hold a CEO, CFO, COO, Manager or Treasurer title at the credit union, and no corporate board member can be on more than one corporate board at a time. There are also new regulations affecting executive compensation, cash flow management, golden parachutes and indemnification payments.

A majority of the new regulation will take effect within 90 days of publication in the Federal Register. However, there is a delayed phase-in for the capital requirements and other portions of the final rule. NCUA provided a chart of effective dates and a side-by-side comparison of the old and new Part 704 on page 6 of the Board Action Memorandum found at this link.

NASCUS and state regulators will continue to work with NCUA as it implements the final rule. To view more resources on the corporation credit union system, follow this link.