Boards Must Be Financially Savvy
ALEXANDRIA, Va.-- Board members of federal credit unions will only get limited exemption from being sued for some of their actions and will have to gain proficiency reading balance sheets if they don't already have it, according to regulations approved by the NCUA last Thursday.
Within six months of joining an FCU's board-which NCUA changed from its initial proposal of three months following complaints in some comment letters-volunteers will have to develop a level of financial proficiency, which includes basic finance and accounting proficiency.
Under the rule, FCUs aren't allowed to indemnify officials and employees against liability based on "aggravated breach of duty of care when a breach affects members' rights and financial interests." But the board changed the rule, after reading comment letters, to allow FCUs to lend board members money to mount a legal defense
The rule also makes changes on the rules for converting from banks to credit unions. It mandates that in such cases the credit union must break down the costs of converting and distribute it to members and provide "complete and accurate" information about possible changes in service.
In addition, FCUs seeking to convert to banks would have to get an independent evaluation and board members and employees couldn't assist members in filling out ballots during conversion votes.
The NCUA board approved the regulatory change 2-1 with Board Member Gigi Hyland opposing it, saying she favored the goals but the methodology added to the regulatory burden for credit unions.
The board also sent out for comment a proposed rule change that would require that credit unions include the fact that they are federally insured in all radio and television advertisements-including those under 30 second-and in annual reports and other legally mandatory publications.
The board also approved a rule modifying the definition of low income. When seeking to determine eligibility for low-income credit union status, the comparison must be between like data categories. It also sent out for comment a proposed rule that would let credit unions not eligible for low-income status using the agency's geo-coding software submit an analysis of a statistically valid sample of member income data as evidence.
The board also sent out for comment a proposed rule specifying the terms of the agency's guarantee of unlimited insurance on non-interest bearing transaction accounts.
NCUA Senior Staff Attorney Frank Kressman said the coverage, which runs through 2012 and was mandated by the regulatory overhaul bill passed by Congress, applies to business accounts on which no interest paid. It doesn't apply to accounts where there is a potential for interest payments if an amount reaches a certain threshold.
NCUA Chief Financial Officer Mary Ann Woodson told the board that the NCUSIF has had a net income of $329 million this year.
Because of the growing number of troubled credit unions for much of 2010, the agency's insurance loss expense has been $694.3 million this year, compared with a $687 million projection.
The fund's equity ratio was 1.29% at the end of November, the same as at the end of October.
At the end of November, 18.6.% of insured shares were in CAMEL 3 credit unions, compared with 18.8% at the end of October There were 1,792 CAMEL 3 credit unions, compared with 1,774 at the end of October.
Woodson also reported that 5.1% of insured shares were in CAMEL 4 and 5 credit unions at the end of November, compared with 5.2% at the end of October. There were 372 CAMEL 4 and 5 credits at the end of November, compared with 378 at the end of October.
There have been 27 failures of federally insured credit unions through November compared, with 28 failures in 2009.