While the NCUA decided Thursday to provide COVID-19-related easing of the agency’s prompt corrective action regulations, the Mountain West Credit Union Association asked for additional regulatory relief.
The proposed relief would include amending the definition of an undercapitalized credit union, temporarily allowing all credit unions to use secondary capital and suspending certain voluntary merger rules.
These recommendations and others were detailed in a May 19 MWCUA letter to NCUA Chairman Rodney E. Hood.
“Credit unions expect that loan losses caused directly by the current crisis will increase sharply, straining credit union capital levels,” MWCUA President/CEO Scott Earl wrote. “In recognition of the fact that anticipated declines in earnings and net worth ratios are not due to unsafe and unsound lending practices, we respectfully ask that the NCUA respond to the needs of credit unions, as credit unions have responded to the NCUA’s request to provide needed relief to affected members, by considering our recommendations for additional regulatory relief.”
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“The trade group’s first listed recommendation seeks a corresponding adjustment to net worth categories to include a temporary adjustment to the ‘undercapitalized’ net worth category,” Earl wrote. “Without such a corresponding change, a credit union that is considered ‘adequately capitalized’ under a new temporary rule would also be subject to the current statutory restrictions for credit unions classified as undercapitalized.”
To address these restrictions, the MWCUA has urged the NCUA to propose legislation to amend the term “undercapitalized” to be defined as a credit union that has a net worth ratio of less than 5%.
In regard to required board actions when a credit union becomes critically undercapitalized, the MWCUA has asked the board to use its discretionary authority to allow credit unions to recover after net worth declines directly caused by the coronavirus crisis.
“We also urge the Board to issue guidance to credit unions related to the Board’s use of such authority detailing its expectations of credit unions classified as critically undercapitalized,” the letter read.
In addition, the trade association has recommended the board extend the time for the NCUA board to appoint a liquidating agent for critically undercapitalized credit unions from 18 months to 36 months.
The MWCUA’s third recommendation was for the NCUA board to amend the Federal Credit Union Act to permit the amount of government insurance/guaranteed loans and investments to be deducted from the amount of total assets in calculating the net worth ratio.
“Recognizing the low risk level of these assets would reduce the stress on the credit union’s net worth while allowing them to move forward helping their members through this temporary crisis,” Earl wrote.
Extending the use of secondary capital to all credit unions temporarily was the trade group’s fourth recommendation because it contends a capital structure limited exclusively to retained earnings places a substantial disadvantage on credit unions during the unprecedented economic shocks of COVID-19. Allowing all credit unions to utilize secondary capital would assist them in maintaining adequate net worth levels, according to the MWCUA.
The trade group’s final recommendation was to suspend the current merger rules over the next two years to allow voluntary mergers to occur as expediently as possible.
“Given the current environment and the anticipated impact of the current crisis, credit unions are likely to realize quickly that a merger may be necessary and would be in the best interest of their members,” Earl wrote. “The ability to consummate a merger swiftly would benefit both the credit union members and the NCUSIF. The current notification periods and required member communications will unnecessarily delay a credit union’s ability to seek out an appropriate merger partner and execute a merger efficiently to achieve the intended benefits.”
When reached on Friday, the NCUA declined to comment on the MWCUA’s letter.