Feb. 14, 2020 NASCUS Report

THIS WEEK: NCUA Board to meet on CECL actions; Reg review schedule announced; New reference rate averages to be published; Budget outlines cannabis, CFPB changes; Credit card debt at record high; HMDA guide updated; TRANSITIONS in PA, NJ; ON THE ROAD in HI, NE; BRIEFLY: Fed nominee faces questions

NCUA Board to consider finalizing
policy statement on ACL under CECL

A final interagency policy statement in response to the impending, new “current expected credit losses” (CECL) accounting standard and addressing allowance for credit losses (ACLs) at credit unions will be considered by the NCUA Board at its meeting next week.

The proposed statement was issued in October by the federal financial institution regulators. In it, the agencies described the CECL methodology for determining ACLs at the institutions they supervised that are applicable to financial assets measured at amortized cost, including loans held-for-investment, net investments in leases, held-to-maturity (HTM) debt securities, and certain off-balance-sheet credit exposures.

The policy statement also included and updated “concepts and practices” detailed in existing allowance for loan and lease losses (ALLLs) at their institutions that, the statement said, remain relevant under the new accounting standard.

“These concepts and practices relate to management’s responsibilities for the allowance estimation process, including the need to appropriately support and document the institution’s allowance estimates; the board of directors’ responsibilities for overseeing management’s processes; and the role of examiners in reviewing the appropriateness of an institution’s ACLs as part of their supervisory activities,” the proposal stated.

Also at next week’s credit union regulator meeting (set for 10 a.m. at the agency’s Alexandria, Va., headquarters), the board will consider:

• A proposed rule on corporate credit unions (under part 704 of agency regulations);
• Two board briefings: one on credit union mortgage rates, the other a quarterly National Credit Union Share Insurance Fund report.

LINKS:
NCUA Board agenda, Feb. 20

Interagency Policy Statement on Allowances for Credit Losses

CUSO rules, interlocks on reg review schedule

Rules covering credit union service organizations (CUSOs), management official interlocks, and agency administrative actions are among the 16 regulations NCUA will be reviewing this year, according to the agency.

Comments on the 16 rules will be accepted by the agency through Aug. 3.

Each year, NCUA conducts a “rolling review” of one-third of its regulations – which gives the agency a chance to review all of its rules once every three years. The goal, according to NCUA, is to ensure its rules are clearly articulated and easily understood. “Comments are welcome on that aspect, as well as substantive suggestions for regulatory changes,” according to the online notice of the 2020 review posted on the NCUA website this week.

The 16 rules up for review this year are:

• Credit Union Service Organizations (CUSOs) (Part 712 of agency rules);
• Management Official Interlocks (Part 711 of the rules and regulations);
• Administrative Actions, Adjudicative Hearings, Rules of Practice and Procedure, and Investigations (Part 747);
• Fidelity Bond and Insurance Coverage for Federally Insured Credit Unions (Part 713)
• Leasing (Part 714);
• Supervisory Committee Audits and Verifications (Part 715);
• Fair Credit Reporting (Part 717);
• Incidental Powers (Part 721);
• Appraisals (Part 722);
• Member Business Loans; Commercial Lending (Part 723);
• Trustees and Custodians of Certain Tax-Advantaged Savings Plans (Part 724);
• NCUA Central Liquidity Facility (CLF) (Part 725);
• Accuracy of Advertising and Notice of Insured Status (Part 740);
• Requirements for Insurance (Part 741);
• Share Insurance and Appendix (Part 745);
• Appeals Procedures (Part 746).

LINK:
NCUA 2020 regulatory review

NY Fed to begin publishing SOFR averages March 2

A new financial reference rate, published in 30-, 90- and 180-day averages, will be made public beginning March 2 as the “Secured Overnight Financing Rate” (SOFR), in a key step for replacing the London Interbank Offered Rate (LIBOR), the Federal Reserve Bank of New York (FRBNY) said this week.

The bank said it will publish the averages in its role as administrator of SOFR. It will also publish a SOFR index. Both actions, the bank said, are being taken “in order to support a successful transition away from U.S. dollar (USD) LIBOR.” The new SOFR averages, the bank said, will be referred to as “30-day Average SOFR”, “90-day Average SOFR” and “180-day Average SOFR.”

The bank also said it was moving forward on publishing the averages after receiving “broadly supportive” feedback from a comment period beginning Nov. 4 on proposed calculation and publication of the averages and index.

According to the FRBNY, the SOFR averages and index will employ daily compounding on business days, as determined by the SOFR publication calendar (each business day that is not broadly recognized as a holiday by the Securities Industry and Financial Markets Association (SIFMA) calendar for U.S. government securities). Simple interest will apply to any day that is not a business day, at a rate of interest equal to the SOFR value for the preceding business day, the bank said.

SOFR was officially adopted by the Fed in December 2017 as a replacement for the venerable – but deteriorating in effectiveness — LIBOR, which has been widely used by financial institutions as a basis for setting (among other things) variable rate loans. The Consumer Financial Protection Bureau (CFPB) has estimated that there is $1.3 trillion in consumer loans with an interest rate based on LIBOR, the bulk which are for residential mortgages.

LIBOR is being phased out, according to CFPB, because the rate is based on transactions among banks that don’t occur as often as they did in prior years, making the index less reliable and credible. Indeed, according to CFPB, the United Kingdom regulator that oversees LIBOR has stated that it cannot guarantee LIBOR’s availability beyond the end of next year. The Federal Reserve has also urged financial institutions to begin adopting the new benchmark SOFR.

SOFR was developed by the Alternative Reference Rates Committee (ARRC) convened by the Federal Reserve. The rate is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

In November, NCUA said it was revising its Credit Union Profile form to collect information helpful to examiners in determining federally insured credit unions’ (FICUs) exposure to LIBOR and their readiness to deal with its discontinuation after 2021. The agency sought comments by Jan. 13.

Also in November, the Financial Accounting Standards Board (FASB) issued temporary guidance aimed at easing the process of stakeholders migrating away from LIBOR to new, replacement reference rates such as SOFR. FASB said then that the finalized guidance will address stakeholders’ operational challenges, help simplify the migration process, and reduce related costs. The finalized guidance was expected to be finalized early this year, but no announcement has yet been made.

LINKS:
FRBNY Statement Regarding Publication of SOFR Averages and a SOFR Index

FASB reference rate reform

Budget envisions CFPB, cannabis oversight changes

The CFPB would be subject to the congressional appropriations process under a proposal advanced in President Donald Trump’s 2021 budget, released this week. It also proposes some changes on the federal stance toward cannabis and hemp.

Regarding CFPB funding: now, the consumer bureau is financed through the Federal Reserve; in 2019, the bureau requested $468.2 million in funding from the Fed, a little more than two-thirds of the statutory cap of just under $679 million.

But the president’s budget proposal is just that, and some even call it a “wish list.” Changing the funding mechanism of the bureau, for example, would require an act of Congress. That’s not likely with a Democratic House of Representatives. The proposal also calls for the Treasury’s Office of Financial Research and the Financial Stability Oversight Council – both set up under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), with an aim at forecasting and coordinated regulator response to financial downturns – to be included under the appropriations process.

Proposals to subject the bureau and the other two agencies have been included in past Trump Administration budget proposals.

Also in the budget proposal: a number of provisions affecting cannabis and hemp.

The budget proposes ending an existing policy that protects state medical marijuana programs from Justice Department interference. On the other hand, the budget allocates $17 million to a national regulatory framework to allow hemp to be produced industrially across the U.S., and grants the Food and Drug Administration (FDA) $5 million to conduct cannabis research and crack down on illegally marketed cannabis products, including CBD (cannabidiol).

The NASCUS Hemp and Cannabis Banking Symposium, June 17-18 in Chicago, will take a close look at the environment for banking hemp and legalized state cannabis businesses – including policy issues. For more information, including the agenda and registration for the meeting, see the link below.

LINK:
NASCUS Hemp & Cannabis Banking Symposium, June

Credit card debt reaches record high level

Credit card debt reached a record level in the final quarter of 2019 with more people, particularly younger consumers, falling behind on their payments, the Federal Reserve Bank of New York said this week. According to data released by the bank, total credit-card balances increased by $46 billion to $930 billion at year-end 2019, well above the previous peak seen before the 2008 financial crisis.

The Fed credit card numbers also indicated that the proportion of credit-card debt in serious delinquency – 90 or more days late — rose to 5.32% in the fourth quarter, the highest level in almost eight years, from 5.16% in the third quarter. The serious-delinquency rate for borrowers from 18 to 29 years old rose to 9.36%, the highest level since the fourth quarter of 2010, from 8.91%. The Wall Street Journal provided an extensive report of the data.

According to the Fed, the rising card balances is related to the continued expansion of consumer credit associated with the 11-year expansion of the economy. Overall, according to the Fed, the expansion of consumer credit began with growth in student and auto borrowing, then with mortgages – and now credit card debt.

The Fed noted that total household debt increased 1.4% to a record $14.15 trillion in the fourth quarter from the third. That’s the 22nd consecutive quarterly increase, with total debt $1.5 trillion above the previous peak of $12.68 trillion in the third quarter of 2008.

LINK:
Household Debt Tops $14 Trillion as Mortgage Originations Reach Highest Volume Since 2005

Exam council updates HMDA guide for 2020 data

An updated version of the guide for reporting Home Mortgage Disclosure Act (HMDA)-related data collected in 2020 and reported in 2021 was released this week by federal regulators. The release of the Federal Financial Institutions Examination Council’s (FFIEC)2020 edition of A Guide to HMDA Reporting Getting It Right is aimed at helping financial institutions better understand HMDA requirements, including the data collection and reporting provisions. Revisions to the 2020 edition of the guide are technical, according to the exam council. The 2020 edition presents information to aid HMDA compliance in the event of a merger or acquisition. It also updates the appendices to reflect recent amendments to Regulation C made by the Consumer Financial Protection Bureau (CFPB), which implement and clarify partial exemptions from reporting established by the 2018 regulatory relief legislation (S.2155). The amendments also extend a temporary increase in the HMDA coverage threshold with respect to open-end lines of credit. The temporary threshold of at least 500 lines of credit in each of the preceding two calendar years remains in effect for 2020 and 2021.

LINK:
Home Mortgage Disclosure Act (HMDA): FFIEC Issues 2020 Version of A Guide to HMDA Reporting: Getting It Right!

TRANSITIONS: Changes in PA; retirement in NJ

Robin L. Wiessmann is moving on from her position as secretary of the Pennsylvania Department of Banking and Securities (DOBS) to a new role in statement government as executive director and CEO of the Pennsylvania Housing Finance Agency (PHFA). She had served as DOBS secretary since January 2015. Meanwhile, Richard Vague has been named acting secretary of the agency. A banker, he is a managing partner of Gabriel Investments and is a former CEO of two credit card companies – First USA and Juniper Financial … Tom Hunt has retired (as of Feb. 1) as assistant division director at the New Jersey Department of Banking and Insurance. His 30-year career at the agency included being as in charge of regulating credit unions and non-bank financial institutions.

ON THE ROAD: In HI and NE

NASCUS President and CEO Lucy Ito was traveling the country over the last several weeks, participating in events from Hawaii to Nebraska. (At left) Ito took part in a regulatory update opposite NCUA Board Member Mark McWatters (center) and moderator Dennis Tanimoto, Hawaii Credit Union League CEO at the Volunteer Leadership Institute (VLI) organized by Rochdale+Paragon in Kauai, Hawaii. She also shared in another VLI dialogue on “The Cannabis Decision,” with James Collins, president and CEO of O Bee Credit Union in Tumwater, Wash. (At right) Meanwhile, in the Cornhusker state, Ito joined Scott Sullivan, president and CEO of the Nebraska Credit Union League, for the association’s annual state government rally, “Jam The Unicam” in Lincoln.

BRIEFLY: Hearing on Fed nominees reveals uncertainty for senators

Two nominees for seats on the Federal Reserve Board faced senators in a confirmation hearing this week – but one of the nominees may have trouble going forward. Christopher Waller and Judy Shelton have been nominated to the two seats, and both faced questions by senators from both sides of the political aisle on the Senate Banking Committee. However, according to press reports following the hearing, at least three Republican committee members have said or indicated that they are undecided on Shelton’s nomination, made by President Donald Trump. Most of the Democrats on the committee have already indicated their disagreements with Shelton, who was forced during the hearing to defend her past writings on eliminating deposit insurance at banks (which she said she no longer supports) and re-imposing a form of the gold standard (which she also indicated she no longer endorses).