ALEXANDRIA, Va. — The NCUA Board looked to expand federal credit union investment powers and cut the budget while setting the record straight on catastrophic act reporting and records preservation at last week's board meeting.
The agency issued an Advance Notice of Proposed Rulemaking seeking comment on a wide variety of safety and soundness concerns associated with allowing natural person federal credit unions and corporates to make investments denominated in foreign currency. The agency has asked for the industry's perspective on a number of concerns related to the proposed power, including whether the investments should be restricted to domestic issuers, exchange rate risk, credit risk, information and technology risk, and the need for internal controls and exit strategies. The ANPR was issued with a 90-day comment period.
This type of investing is not explicitly prohibited in the Federal Credit Union Act but NCUA's regulations currently do not allow for it. NCUA recently amended it share insurance rule to authorize federally insured credit unions to accept member shares denominated in foreign currency, which was part of the impetus for this proposal. The proposal also states that NCUA is not considering lending in foreign currencies at this time but may do so in the future.
Recommended For You
While the agency is reviewing whether to allow federal credit unions to use foreign domiciled obligors only, NCUA staff indicated they are leaning toward restricting it to domestic obligors in an effort to avoid foreign payment systems. NCUA also tipped its hand saying that an approval process for this activity is likely to ensure the institution has the expertise and systems necessary.
NCUA also issued a final rule dealing with catastrophic act reporting and records preservation. The rule clarifies the term catastrophic act and requirements for vital records preservation while adding an appendix that provides guidance–a point that is stressed in the preamble–on developing a program to prepare for a catastrophe. While the rule includes certain minimum requirements, examination is still risk based and programs can be adapted to fit a particular credit union's needs.
NCUA Vice Chairman Rodney Hood brought up the fact that not all credit unions are automated and how might they ensure compliance. Examination & Insurance Program Office Andrew Healey noted that 122 credit unions are not automated, 18 of those low-income designated. He suggested that these credit unions could back up their monthly reports with the daily reports they already have to keep for the credit unions records, for example, and not incur too much extra burden.
While the rule might create some extra work for credit unions, NCUA Board Member Gigi Hyland stated, "This rule is meant for the members."
All three board members emphasized that the agency was very cognizant of credit union concerns that guidance can be treated as regulation during examinations but noted that the preamble to the final rule made clear what is guidance, such as Appendix B on how to develop a program, and what is regulation. The rule also includes an appeals process for credit unions that cannot reach an agreement with their examiners on what is appropriate compliance for their credit union.
The NCUA July Board meeting also means the mid-session review of the agency's budget. At this point, is NCUA expecting to end the year $739,637, or 0.5%, under the initial budget of $152,016,840. Approximately $250,000 of this will go toward capital acquisitions, divided evenly between obligations to the Federal Financial Institutions Examination Council, which has undertaken a three-year project to re-write the Home Mortgage Disclosure Act software, and an archiving platform for agency e-mail to aid compliance with amendments to the Federal Rules of Civil Procedure.
Finally, NCUA Chief Financial Officer Dennis Winans provided a quarterly overview of the insurance fund. Gross income dipped a bit in June to $26.5 million compared to May's $27.2 million, which he said was due to one less calendar day in the month. Operating expenses were down from $6.9 million to $6.3 million for the same reason. However, net income for the year is projected to reach $207.0 million, up $25.4 million from 2006. The equity ratio stands at 1.27% but is expected to bounce back up to 1.31% by yearend.
Problem credit unions are down to 219 from 240 last year and 280 in 2005. However, the percentage of insured shares they represent was up slightly from 1.05% in 2006 to 1.06% in 2007. This figure is down from 1.12% from 2005. Eight failures have occurred this year, on track with the last two years. Five of these credit unions were merged and 3 were liquidated.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
