Summary outlines 3 crucial elements of corporate proposal

July 10, 2017 -- The new, proposed corporate rule issued by NCUA at its June board meeting includes three important elements that are designed to help meet the agency’s goal of modifying the approaching capital framework benchmarks established in 2010 as part of the regulatory restructuring of the corporate system, according to a summary of the proposal published by NASCUS.

The three important elements of the proposal identified in the proposal – which would apply to both federal corporate credit unions and state chartered corporate credit unions – as outlined in the summary are:

  • Definition of Tier 1 Capital: NCUA proposes incorporating ‘‘GAAP equity acquired in a merger’’ as a component of retained earnings, which is included in the definition of “tier 1 capital” of corporates, to improve transparency. Plus, the summary notes, the proposal recommends “allowing corporate credit unions to count as Tier 1 capital all contributed capital from a source not covered by federal share insurance.”
  • Retained Earnings Ratio: The agency proposes eliminating a prohibition, starting in 2020, on counting any contributed capital in excess of retained earnings toward the leverage ratio. However, NCUA also wants to require all corporates to achieve an eventual retained earnings ratio of 250 basis points. “NCUA would do this by adding a definition of ‘’retained earnings ratio’’ that would be the corporate credit union’s retained earnings divided by its moving daily average net assets,” the summary states
  • Expanded Investment Authorities: NCUA proposes amending the requirements for expanded investment authority to add a ‘‘retained earnings ratio’’ requirement which reflects the 2.5% rate. “Likewise, to the provision that allows an NEV decline to 35%, NCUA proposes adding a 3% retained earnings requirement,” the summary states.

Comments on the proposal are due Sept. 1

LINK:
NASCUS Summary: NCUA proposed rule, Corporate credit unions