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ARLINGTON, Va. – NASCUS joined with other credit union trade associations – CUNA and NAFCU – in stating its support of NCUA’s proposed “safe harbor” provision for evaluating net worth restoration under Prompt Corrective Action to assist credit unions that fall marginally below the “adequately capitalized. NASCUS though made it clear in its comment letter to NCUA that it is opposed to the agency adding a new subsection (e) “defining a `dividend’ to include interest paid on deposits by state-chartered credit unions.” In his letter to NCUA Secretary of the Board Becky Baker, NASCUS President Doug Duerr cited the new subsection (e) which Duerr said, “defines `dividend’ as `a distribution of earnings by a federally-insured credit union and payment of interest on a deposit by a state-chartered credit union. “This is flawed,” Duerr wrote. “While various restrictions and requirements imposed by PCA regarding the payment of dividends to members are appropriate, NCUA must distinguish between true `dividends’ paid on shares and `interest’ paid on deposits.” Duerr went on to explain that many states allow their credit unions to accept both share and deposit accounts, and that in these states, SCCUs may pay dividends on their share accounts and interest on their deposit accounts. “Our concern with the new definition arises under the application of some operative sections of the PCA rule concerning `dividends’ . NASCUS does not feel that it is appropriate for the restrictions on payment of dividends in .401(d) and .402(d)(5) to apply to contractual interest. These subsections were in effect long before the PCA rules were adopted. It appears the new definition would be a significant departure from the long standing policy set forth in these subsections.” In addition, Duerr wrote, “NASCUS does not believe it is appropriate for the NCUA to have authority under .403 (d)(5) to restrict the payment of interest that a state credit union is contractually obligated to pay, and thereby cause the credit union to breach its deposit contracts, outside of the assisted merger context.Furthermore, should the NCUA eliminate the dividend definition in the final rule, the `except that’ clause in this subsection should be revised to cover contractual interest.” Lastly, NASCUS recommends that Subsection (e) of Part 702.2 should be eliminated “so as to not conflict with the contractual obligation on the payment by state-chartered CUs. Beyond agreeing with NCUA’s proposed “safe harbor” provision to PCA regulations, NASCUS also agrees with other proposed revisions, including: * amending the risk based net worth (RBNW) requirement to allow for risk weightings to reflect loans sold with partial recourse; * allowing CUs to apply for and receive a risk mitigation credit before the CU may fail the RBNW requirement; * clarify that the NCUA may allow continued compliance with an net worth restoration plan (NWRP) as an “other corrective action;” * clarify that a net worth restoration plan NWRP doesn’t have to be published before it’s enforceable; and * lower the minimum category in which losses can be charged to the regular reserve account without regulatory approval from `well capitalized’ to `adequately capitalized.’ NASCUS also recommended NCUA consider further revisions to PCA: * adopt an alternative form of capital for federally-insured CUs that would be reflected in an applicable RBNW requirement and in evaluating a net worth restoration plan; * eliminate the regular reserve account as a required federal regulatory account. “The regular reserve account is obsolete as a federal regulatory requirement,” wrote Duerr. -

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