Prompt Corrective Action – Earnings Retention Waivers and Net Worth Restoration Plans
April 29, 2022
Melane Conyers-Ausbrooks
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
Re: NASCUS Comments on Prompt Corrective Action: Earnings Retention Waivers and Net Worth Restoration Plans
Dear Secretary Conyers-Ausbrooks:
The National Association of State Credit Union Supervisors (NASCUS)[1] submits this letter in response to the National Credit Union Administration’s (NCUA) request for comments on RIN 3133-AF19, Prompt Corrective Action: Earnings Retention Waivers and Net Worth Restoration Plans.[2] This Interim Final Rule (IFR), amends NCUA’s Prompt Corrective Action (PCA) rules to help credit unions remain liquid and serve their members.[3] Effective February 28, 2022, the IFR amended § 702.106 to temporarily enable NCUA to issue an order applicable to all federally insured credit unions (FICUs) waiving the earnings retention requirement for any FICU classified as adequately capitalized and § 702.111 to allow certain qualifying undercapitalized FICUs to submit simplified Net Worth Restoration Plans (NWRPs).[4] These changes are substantially similar to IFRs enacted by NCUA in May of 2020, and again in April of 2021.[5]
That NCUA is reenacting these changes for a third time speaks volumes to the disruption and economic dislocation resulting from the COVID-19 pandemic. The ongoing effects of the pandemic, the potential for new COVID variants, and current geopolitical conflict portend possible future economic volatility. Given the ongoing economic uncertainty, preserving the supervisory flexibility provided by these changes is prudent.
NASCUS supported NCUA’s changes to the retained earnings and NWRP provisions of Part 702 in 2020 and 2021, and we do so again now.[6]
At the February 2022 NCUA Board meeting, it was noted that re-enacting the IFR for a third time calls into question whether the relief is truly “temporary.”[7] We believe this speaks to the need to revisit the statutory framework of the Prompt Corrective Action rules. NASCUS has long advocated for modernizing the regulatory capital requirements for credit unions to recognize supplemental capital in calculating credit union net worth. In addition, the need for this IFR, a third time, speaks volumes of the need to ensure supervisory discretion and flexibility are available in the appropriate circumstances. We encourage NCUA to work with state regulators and system stakeholders to identify changes for PCA that would better serve the credit union system in the next crisis.
Finally, as we did in 2020 and 2021, we concur that good cause exists to exercise this exception to the Administrative Procedure Act and that prior public notice in this case is unnecessary.[8]
NASCUS supports NCUA’s extension of the IFR and thanks the agency for the opportunity to share comments on the record. We are happy to discuss our views in more detail at NCUA’s convenience.
Sincerely,
Brian Knight
President & CEO
[1] NASCUS is the professional association of the nation’s 45 state credit union regulatory agencies that charter and supervise over 2,000 state credit unions. NASCUS membership includes state regulatory agencies, state chartered and federally chartered credit unions, and other important stakeholders in the state system. State chartered credit unions hold over half of the $1.87 trillion assets in the credit union system and are proud to represent nearly half of the 125 million credit union members.
[2] “Prompt Corrective Action: Earnings Retention Waivers and Net Worth Restoration Plans” 87 Fed. Reg. 10944 (February 28, 2022).
[3] Ibid
[4] 87 Fed. Reg. 10944 (February 28, 2022).
[5] See 85 FR 31952 (May 28, 2020); and 86 Fed. Reg. 20,258 (Apr. 19, 2021). One notable difference is that since the enactment of the 2021 IFR, NCUA’s 2015 Risk-Based Capital Final rule took effect which in part amended part 702 by removing §§ 702.201 and 702.206 and relocating them to new §§ 702.106 and 702.111.
[6] See NASCUS Comments on Temporary Regulatory Relief Rule in Response to COVID-19 – Prompt Corrective Action (RIN 3133-AF19) (June 29, 2020). Available at https://www.nascus.org/comment-letters/nascus-comments-on-temporary-regulatory-relief-rule-in-response-to-covid-19-prompt-corrective-action-rin-3133-af19/. And NASCUS Comments on Temporary Regulatory Relief Rule in Response to COVID-19- Prompt Corrective Action (June 18, 2021). Available at file:///C:/Users/brian/OneDrive%20-%20NASCUS/Downloads/NCUA-2021-0056-0008_attachment_1.pdf.
[7] NCUA (February 17, 2022) 2022 February NCUA Board Meeting (video) https://www.youtube.com/watch?v=ECG1cGZ7jtA.
[8] 5 U.S.C. 553(b)(3).