NCUA Part 704 Proposed Changes: Do They Matter?
Worried teeth are gnashing today as experts mull the import of what are at first glance highly complicated changes in Part 704 rules proposed by NCUA at its Monday board meeting.
The NCUA summary reads: “The proposed rule contains technical amendments to Part 704, NCUA’s rule governing corporate credit unions. The amendments would: (1) delete the definition of “daily average net risk-weighted assets” in §704.2; (2) revise the definition of ‘net assets’ in §704.2 to exclude Central Liquidity Facility stock subscriptions; (3) revise §704.6 to clarify certain requirements regarding investment action plans; (4) clarify the weighted average life (WAL) tests in §704.8; (5) revise the consequences of WAL violations in §704.8; (6) substitute the term ‘core capital’ for the phrase ‘the sum of retained earnings and paid-in capital’ in §704.18; (7) correct the heading of §704.19; and (8) correct a date contained in Model Form D of Appendix A to part 704.”
More explanatory verbiage provided by NCUA is here.
Mary Dunn, CUNA deputy general counsel, said, “The corporate proposal includes mostly technical changes. ... We will be reviewing it with our members. One of the issues that may have additional significance is the proposed change to no longer allow CLF stock subscriptions to count as capital because in the coming weeks and months there will be discussions and consideration about the continued role of the CLF.”
At NAFCU, public relations manager Patty Briotta emailed, “we have no specific comment” [on the proposed rule changes].
Credit union consultant Marvin Umholtz added his opinion: “I am willing to accept the NCUA’s spin that they are technical amendments.”
However, Umholtz cautioned that the NCUA document raises red flags around the CLF: “Excluding the CLF stock from the definition of net assets is a judgment call that only becomes problematic when one ponders the NCUA’s contention that there is no credit risk in the CLF stock investment.”
And that cycles back to Dunn’s contention that probably there will be much more focus on the CLF in coming months – but nobody presently knows where that conversation is heading.