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NCUA approves modified stress test rules

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ALEXANDRIA, Va. (4/25/14)--The National Credit Union Administration Thursday adopted a final rule on capital planning and stress testing for the largest credit unions. The final includes changes recommended by the Credit Union National Association, but CUNA said it still believes the rule is unnecessary.
 
CUNA President/CEO Bill Cheney said after the agency's action, "We appreciate that the agency has adopted some changes that we suggested--such as not disclosing stress test results publicly--and has agreed to allow credit unions to apply, after three years, to have results of their own tests used for these purposes.
 
"However, CUNA did not support this proposal. While we acknowledge the utility of stress tests, we see no need for a rule. Further, the agency has not sufficiently substantiated a need for the use of third parties to conduct stress testing of covered credit unions, even for a finite period, rather than reviewing the assumptions and results of credit unions' own stress tests."
 
Cheney also highlighted that the cost of the program--which must be borne by all federally insured credit unions--is now up to $5 million for the first year, which CUNA believes is a high and unnecessary cost.
 
The rule, effective 30 days after publication in the Federal Register , applies to federally insured credit unions with assets of $10 billion or more. It passed by a vote of 2-1, with NCUA board member Michael Fryzel casting the dissenting vote. Board member Rick Metsger signaled a willingness to consider additional changes to the rule.
 
The agency plans to issue guidance on the final rule and CUNA is urging the agency to allow input from CUNA and the state leagues, as well as from affected credit unions, on the document before it is made final.
 
Under the rule, covered credit unions must submit capital plans annually to NCUA, and the plans must meet specific requirements reflecting risks and complexity of each covered credit union. In addition, affected credit unions must conduct capital plan assessments over each quarter of a three-year planning horizon. The final rule requires a minimum stress-test capital ratio of 5%.
 
The NCUA removed a specific requirement under the proposal to test the impact of interest rate shocks on the net economic value of the credit union. Instead, the final rule requires that covered credit unions perform reverse stress testing as part of their capital planning.
 
Further, the NCUA changed the final rule to strengthen the provisions regarding its consultation with the applicable state supervisory authorities, a change CUNA noted it supported.

For more on the final stress test rule, use the resource link to access the NCUA document.

No extension for RBC comments, Matz tells CUNA, NAFCU

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WASHINGTON (4/25/14)--National Credit Union Administration Chairman Debbie Matz has again said no to a joint request by the Credit Union National Association and National Association of Federal Credit Unions to extend the comment period for the agency's risk-based capital proposal.
 
The credit union trade associations have twice requested a 90-day extension based on concerns that the current May 28 deadline does not give credit unions enough time to analyze the proposal's impact on their individual operations and to prepare their responses.
 
"Given the health of the credit union system, we do not see the need to rush this rule and believe more time for comments will also benefit the agency through the production of well-reasoned letters," CUNA President/CEO Bill Cheney and NAFCU President/CEO Dan Berger argued.
 
Matz in her response delivered Thursday noted her assurances that the agency is "prepared to make those changes to the proposal we conclude are fundamentally sound and justifiable from a public policy perspective." She also said that the RBC comment period is "one of the longest in NCUA history."
 
"I agree that that history is being made here," CUNA's Cheney said, "The proposed rule is one of the most significant ever for credit unions. For that reason I still believe credit unions deserve more time to consider all of the ways the proposal will affect them--and 90 days, or even 120, is just not enough."

Senate Banking sets April 29 vote for McWatters

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WASHINGTON (4/25/14)--The Senate Banking Committee is set to vote April 29 on the nomination of J. Mark McWatters for a post on the National Credit Union Administration board, as well on three Federal Reserve Board nominations and one for the U.S. Department of Housing and Urban Development.

NCUA nominee J. Mark McWatters is shown here testifying before the Senate Banking Committee in March. He said that, if confirmed, he would "work diligently to ensure the continued integrity and safety and  soundness of our nation's credit union system." (CUNA Photo)
Just a little more than a month ago, McWatters appeared before the banking panel to testify on behalf of his qualifications for the NCUA job. At that time he pledged to "work diligently to ensure the continued integrity and safety and  soundness of our nation's credit union system in an ever-evolving marketplace."
 
Addressing one of the credit union industry's current hot-button issues, McWatters told Senate Banking Committee members that examining the overall issue of risk-based capital for credit unions in general and the NCUA's current proposal specifically would be high on his list of priorities if confirmed.
 
If the committee votes to approve McWatters' nomination, it will then send his name to the Senate floor for final confirmation.  McWatters would replace board member Michael Fryzel, whose term ended officially  Aug. 2.
 
The committee will also vote next Tuesday on the qualifications for Stanley Fischer, as a member and vice chairman of the Federal Reserve Board; Jerome Powell, as Federal Reserve Board governor; Lael Brainard, as a Fed governor; and Gustavo Aguilar, to be an assistant secretary for the U.S. Department of Housing and Urban Development.

April 29 is also the date the Senate Banking Committee has scheduled a vote on the Johsnon-Crapo housing finance reform draft.

NCUSIF report shows drop in low-ranked CUs

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ALEXANDRIA, Va. (4/25/14)--The National Credit Union Share Insurance Fund ended the first quarter of this year with an equity ratio of 1.30% and reserves at approximately $227.5 million, according to the National Credit Union Administration's quarterly update delivered during a Thursday open board meeting.
 
The NCUA did not assess a Share Insurance Fund premium in 2013, and if the current equity ratio holds steady, a premium would be unlikely this year.  However, the NCUA said the board will make that determination for 2014 at its open meeting on July 31.
 
Click to view larger image Source: NCUA
Of the $227.5 million in reserves, $19.3 million is allocated for specific credit unions. Six federally insured credit unions failed during the first quarter of 2014. The total amount of losses associated with those failures was $18.6 million. A total of 17 credit unions were liquidated in 2013.

The NCUA also reported that there are currently 306 low-rated CAMEL 4 and 5 credit unions. They hold approximately $11.9 billion of insured shares, which is about 1.4% of total insured shares.  That 1.37% is a significant improvement since the peak in December 2009 when CAMEL 4 and 5 credit unions represented of 5.72% of insured shares.
 
The agency staff also noted that there are 1,471 CAMEL 3 credit unions, which represent 11.02% of insured shares, or $95.5 billion. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 12.39% of total insured shares, according to the agency report.

Associational common bond rules may be tweaked for clarity

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ALEXANDRIA, Va. (4/25/14)--Changes may be coming to the National Credit Union Administration's  chartering and field of membership (FOM) rules regarding associational common bond requirements. The agency proposed amendments Thursday to its chartering manual which, in part, would expressly establish a threshold requirement that an association must not be formed primarily for the purpose of providing credit union membership.
 
That threshold reflects the agency's longstanding interpretation of the Federal Credit Union Act. During the open board meeting discussion of the requirements, NCUA Chairman Debbie Matz said the proposal is the result of enforcement actions taken where credit unions advertised open FOMs that did not reflect any limitations.
 
If approved, the rule would expand the criteria for considering whether an association meets NCUA's requirements to be added to a federal credit union's field of membership. If an association satisfies the common bond requirements based on a totality of the circumstances, the group qualifies for inclusion in the federal credit union's field of membership.
 
Importantly, the rule would support regulatory relief by  granting automatic inclusion to certain categories of groups, consistent with actions the agency has approved in the past. Such groups include alumni associations, religious organizations including churches, homeowner associations, scouting groups, electric cooperatives, and labor unions, as long as such groups meet the rule's requirements.

Comments are due within 60 days of the proposal's publication in the Federal Register .
 
For more on the proposal, use the resource link.