The National Credit Union Administration (NCUA) has renewed temporary measures designed to give credit unions relief during the COVID-19 pandemic.
This new interim final rule is similar to the one the NCUA board passed in May 2020, which expired at the end of last year. The board felt it was necessary to reintroduce the temporary relief measures to continue providing assistance for COVID-19-related financial and economic disruptions.
“The latest round of stimulus spending has further expanded credit unions’ balance sheets,” NCUA Chairman Todd Harper said in a release. “As a result, many well-run credit unions with positive earnings now have lower net worth ratios. Given the continued uncertainty with the pandemic and share growth many credit unions are seeing, this targeted, tailored and temporary rule will provide critical relief so eligible credit unions can focus their limited resources on their members’ needs instead of planning for earnings transfers and developing detailed net worth restoration plans.”
The provided relief measures make changes to the agency’s prompt corrective action regulations and are related to earnings transfer waivers for adequately capitalized credit unions and net worth restoration plans for certain undercapitalized credit unions. The first corrective action temporarily reduces the earnings retention requirement for federally insured credit unions classified as “adequately capitalized.””.
“Those credit unions unable to meet the earnings retention requirement will not have to submit a written application requesting approval to decrease their earnings retention amount,” the agency stated. “However, if a credit union either poses an undue risk to the National Credit Union Share Insurance Fund or exhibits material safety and soundness concerns, the appropriate NCUA regional director may require the credit union to submit an earnings transfer waiver request.
“The second change temporarily permits an undercapitalized credit union to submit a streamlined net worth restoration plan if it becomes undercapitalized predominantly because of share growth,” the NCUA continued. “If a credit union becomes less than adequately capitalized for reasons other than share growth, it must still submit a net worth restoration plan under the current requirements in NCUA’s regulations.”
“Because of the pandemic and stimulus, I am concerned that credit unions may temporarily fall below the well-capitalized level and become subject to various prompt corrective action requirements,” NCUA Board Member Rodney Hood said. “While this temporary relief wasn’t widely utilized last year when it expired, it now appears we need this tool now for credit unions. I thank Chairman Harper for bringing this rule forward to provide relief to credit unions of all sizes that experience a decline in their net worth ratio because of a rapid increase in shares because of the flight to safety.”
The interim final rule is effective upon publication in the Federal Register and will remain in place until March 31, 2022. Once published, there is a 60-day public comment period.