Ncua Letters To Credit Unions 2020

Ncua Letters To Credit Unions 2020 – Close Text by John Reosti John twitter reosti1967 linked john-reosti-55798a3b February 25, 2020 at 9:00 am. EST Read 3 minutes

A plan to allow more credit unions to raise second-tier capital won’t lead to a sudden surge in activity.

Ncua Letters To Credit Unions 2020

As the National Credit Union Administration considers allowing hundreds of additional credit unions to issue subordinated loans, there is a growing belief among industry observers that investor demand is limited.

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“There’s a real question about what the demand and costs will be for credit unions,” said Peter Duffy, managing director at Piper Sandler.

But the subordinated debt rule approved for comment by NCUA’s board last month would give that authority to complex credit unions — those with more than $500 million in assets — and newly formed institutions. Credit unions that expect to qualify for low-income or complex status within two years will also be allowed to apply.

NCUA estimates that about 300 more credit unions will receive credit authorization on the first day of the new plan. But few are willing to take advantage of that opportunity, Duffy said, adding that many of these credit unions already have net assets between 11% and 13%.

For credit unions with low income ratings, net worth is calculated by dividing retained earnings by total assets. Subordinated credit unions include subordinated debt in their numbers.

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“You look at why an organization raises capital — to support organic growth, mergers and acquisitions, or both, or to add revenue that can’t sustain growth,” Duffy says.

“None of this is relevant,” Duffy said. “We know of many unions that have over $1 billion in assets.” In our interviews, with very few exceptions, they did not indicate that they were investing. “It’s a critical need.”

Dennis Dollar, a principal partner at Dollar Associates, said the proposed rule would not expand the number of credit unions that can include debt in net worth calculations.

“Low-income, non-complex credit unions can issue it, but they can use it for risk capital purposes, not just value,” Dollar added. Of course, the rule would “provide more clarity. It’s what NCUA expects from a subordinated debt application, and it should lead to more approval — but it won’t create more work where it doesn’t already exist.”

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Banking groups have consistently opposed any new powers for credit unions, and subordinated loans are no different. The American Bankers Association and the Independent Community Bankers of America condemned the proposal on the day NCUA’s board approved it.

Both groups pointed to rules that would allow credit unions to sell loans to accredited investors for the first time, arguing that prospective bankers could disrupt the cooperative ownership structure of credit unions.

Although some low-income credit unions raise more secondary capital, the overall amount remains relatively low. As of Sept. 30, credit unions had $290 million in secondary capital on their books and $1.54 trillion in assets.

Michael Edwards, a Marlboro attorney with extensive experience representing credit unions, said most of the loans are to charitable trusts that provide low-interest loans to help start new, low-income credit unions.

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In contrast, the subordinated debt rule requires greater use of bank agreements with the credit union’s reliable disclosure of debt and the offering document.

As such, credit unions “may attract more investors looking for income,” Edwards said. In Australia, Canada and Europe, credit union loan markets are dominated by investors, “and the same may be true in the United States.”

However, the ban on most credit unions from counting subordinated debt limits its usefulness, Edwards said. John Reosti CloseText John twitter reosti1967 linked john-reosti-55798a3b Jul 30, 2020 at 4:46 am. EDT Read 3 minutes

National Credit Union’s board of directors has voted to advance a rule that would take effect immediately within three years of the current expected credit loss accounting standard.

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Thursday’s unanimous vote at the board’s regular monthly meeting allows for a 60-day comment period after agency officials publish the rule in the Federal Register.

The proposed phase-out is proposed by banking regulators in February 2019 and is intended to reduce CECL’s impact on credit unions’ capital levels. Although credit unions don’t have to become CECLs until January 2023, President Rodney Hood said they will need additional help building reserves because of the coronavirus pandemic and the resulting recession.

The CECL, which went into effect for most publicly traded banks in January, “requires more complexity, higher costs and more onerous requirements while bringing additional revenue,” he said.

In an April 30 letter to former Financial Accounting Standards Board Chairman Russell Golden, Hood advocated exempting credit unions from the CECL altogether. Dan Berger, president and CEO of the National Association of Federally Insured Credit Unions, reiterated his call for the exemption in a letter Thursday to Gold’s successor, Richard Jones.

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“The NCUA has taken a strong first step toward providing credit unions with much-needed relief from the FASB’s CECL standard,” Berger said in a press release Thursday.

Board member Mark McWatters similarly called the CECL standard “a very complex mechanism for increasing loan-loss reserves” at Thursday’s meeting.

The CECL requires lenders to forecast credit losses, which allows them to be recognized earlier than the realized loss standard. Under the loss-making standard, lenders must wait until a loan has deteriorated to add allowances to their loan losses.

Under the NCUA’s proposed rule, the agency would calculate the amount of aid to individual credit unions based on the difference between the retained earnings that credit unions report before the transition and the numbers after enactment.

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In the first three quarters of 2023, the NCUA will increase credit unions’ retained earnings and total assets by 100% of the pass-through differential, then gradually reduce the adjustments through the end of 2025.

A small number of credit unions have chosen to transition to CECL early. Any credit union that begins adopting the standard early may not be phased out.

Meanwhile, credit unions with less than $10 million in assets will be fully exempt from generally accepted accounting principles in determining loan loss reserves.

The board also formally read a provision allowing credit unions to define a combined statistical area, or any portion of it, as their membership area, taking into account a population of 2.5 million people.

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The move follows the Supreme Court’s refusal to hear the American Bankers Association’s appeal last month of the NCUA’s October 2016 changes to its membership rules.

To address the allegations in the ABA’s lawsuit, the membership rule formalizes changes to its handbook that require credit unions that intend to serve a combined statistical area or major statistical area to detail their plan of service. the needs of the various demographic groups in the proposed membership.

“I often refer to financial inclusion as the civil rights issue of our time, and this rule will help maintain and expand financial access for more Americans in rural and disadvantaged communities,” he said.

In other action, the committee approved a proposed rule to approve a proposed rule that exempts Paycheck Protection Program credits from calculations for determining federal union wages and to publish the methodology the agency uses to calculate the supplemental pass-through rate.

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When it approved the methodology in 2017, the council promised to republish it in three years and seek additional clarification. McWatters called the methodology effective and transparent, but said there is “always room for improvement.”

The transfer rate determines the annual amount the institution transfers from the unit trust fund to pay for routine operations. This transfer, along with fees paid by federal credit unions, funds NCUA’s annual budget. This article relies heavily on references to primary sources. Please improve this by adding secondary or third sources. Find sources: “National Credit Union Administration” – news · newspapers · books · scholar · JSTOR (September 2016) (Learn how and who to remove this template message)

The National Credit Union Administration (NCUA) is the government-sponsored insurer of credit unions in the United States and is one of two organizations that provide deposit insurance to depositors in US depository institutions, the other being the Federal Deposit Insurance Corporation, which insures commercial banks. and savings institutions. NCUA is a non-partisan federal agency created by the United States Congress to regulate, charter, and supervise federal credit unions.

: 12 Backed by the full trust and credit of the US government, NCUA manages and administers the National Credit Union Mutual Insurance Fund, which insures the deposits of more than 124 million account holders at all federal credit unions and the vast majority of state. – credit unions. In addition to the Mutual Insurance Fund, NCUA administers three other funds: the NCUA Operating Fund, the Central Liquidity Facility (CLF), and the Community Development Trust Loan Fund (CDRLF). NCUA’s Operating Fund funds the work of the Mutual Insurance Fund.

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