Troubled CU, Liquidity Proposals Released (Misc News: July 25, 2012)
The NCUA issued proposed rules at its open board meeting that it says would help the agency determine when credit unions are in trouble.
CUNA News Now reported that under the "troubled condition" proposed rule, the NCUA would be added to the list of regulators that may determine whether a state-chartered federally insured credit union's financial issues are enough to label the credit union as "troubled." The NCUA would also be permitted to assign a CAMEL Code 4 or 5 rating to those credit unions. Currently, the CAMEL rating assigned by a state supervisor alone determines if a state-chartered FICU is in "troubled condition."
MCUL & Affiliates and CUNA share concerns over this proposal. “We agree with CUNA that at the very least, the proposed changes to the Federal Credit Union Act's definition of ‘troubled condition’ are unnecessary, and raise potentially serious concerns about the dual-chartering system in general and NCUA expansion into the regulation of state-chartered credit unions," said MCUL & Affiliates CEO David Adams.
Under the new proposal regarding access to emergency liquidity, credit unions with less than $10 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action. All FICUs with assets of $10 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations. FICUs with assets of $100 million or more would be required to have access to a backup federal liquidity source for emergency situations.
The NCUA said these credit unions can ensure access to backup liquidity by:
• becoming a member of the CLF;
• becoming a CLF member through a CLF agent; or
• establishing direct borrowing access to the Federal Reserve's Discount Window.
Some credit unions with more than $100 million in assets currently do not have transaction accounts, and would not be eligible to access the Fed discount window. However, NCUA staff said Fed officials have indicated these credit unions may be able to set up a de minimis amount of transaction accounts to access the Fed discount window.
The agency will soon release a document detailing background information on the CLF for credit unions that may not be familiar with the fund. An NCUA webinar on the status of the CLF is being planned for Aug. 15, and another on the impact of U.S. Central's closing is being planned for October, the agency said.
CUNA’s System Liquidity Task Force will review the liquidity proposal, and MCUL & Affiliates’ Regulatory Affairs Department will be also reviewing both proposals and seeking comment from Michigan credit unions. “We strongly urge our federal regulators to keep in mind the ever-growing burden and high cost of regulatory compliance for credit unions. They should consider education and increased focus on existing rules and guidance for financial institutions on issues such as liquidity and the CLF, rather than increased regulation,” added Adams.
Both rules were released for a 60-day public comment period.