NCUA Board Lowers SIF Normal Operating Level, Passes 2022-2023 Budget

During its final meeting of the year, NCUA board members had some heavy lifting to accomplish before the holiday break. In the three-hour meeting, board members voted to lower the Share Insurance Fund’s Normal Operating Level (NOL) from 1.38% to 1.33% in 2022.

NCUA Board Chairman Todd Harper recognized that many people in the industry would like to see the NOL drop even more to 1.30%, which was where the NOL historically has been. “In normal times, that might make sense. However, there is nothing normal about what we have all experienced for nearly two years because of the COVID-19 pandemic,” he said.

While Vice Chairman Kyle Hauptman and Board Member Rodney Hood said they would prefer the NOL to drop to 1.30%, both agreed keeping the NOL at 1.33% is acceptable for now, especially since the SIF equity ratio is expected to end 2021 at 1.28%.

“If we get to a situation where we’re between 1.33% and 1.38%, that’s kind of a high-class problem because right now we’re not projecting it to get that high anytime soon,” Hauptman said. “Whatever disagreements we have right now, as a practical matter, they don’t appear to have any real effect anytime soon.”

With a unanimous vote of 3-0, the board approved the updated NOL for next year.

2022-2023 Budget Approved

In a 3-0 vote, board members approved the capital, operating and NCUSIF budgets for 2022-2023 of $339.5 million. That is nearly $6 million less than draft budget proposal released in November.

Harper said, this budget “is smaller in dollars and full-time equivalents, but it still achieves the important goals of protecting credit union members.”

According to the NCUA, the budget for 2022 is decrease of $1.9 million (0.6%), compared to the 2021 board-approved budget levels. The budget will support 1,196 full-time employees for 2022 and 1,204 full-time employees in 2023.

A copy of the updated budget can be read and downloaded on the NCUA’s website.

CU Leverage Ratio Final Rule

The board unanimously approved a final rule to simplify the risk-based capital requirements for eligible complex credit unions. According to the final rule, a complex credit union that maintains a minimum net worth ratio that meets other qualifying criteria is eligible to opt into the complex credit union leverage ratio framework if the credit union has a minimum net worth ratio of 9%.

During comments, Harper said consensus on this final rule came in the form of an old children’s story.

“Some wanted the leverage ratio to be 8%. I viewed that as too soft. I wanted the final CCULR level to rise over time and reach 10%, a level that others considered too hard. So, we compromised and have permanently set the CCULR at 9%. That ratio turned out to be just right.”

Harper also said, “This final rule is a balanced approach that gives complex credit unions a risk-based capital framework comparable to those developed by the other federal banking agencies. It strengthens the system’s capital levels and provides 70% of complex credit unions with a streamlined approach to managing their capital. As we continue to address the fallout of the COVID-19 pandemic, this final rule is a prudent course of action.”

According to the NCUA, the final rule goes into effect Jan. 1, 2022, the same date that the agency’s risk-based capital rule also goes into effect.

Mortgage Servicing Assets Final Rule

Board members approved a final rule to amend the agency’s investment regulation, which will allow credit unions to purchase mortgage servicing assets from other federally-insured credit unions.

In order to make those purchases, credit unions must meet several requirements.

According to the NCUA, federal credit unions with a CAMELS composite rating of 1 or 2, including a Management component rating of 1 or 2, may purchase the mortgage servicing rights of loans from federally-insured credit unions, provided that:

• The underlying mortgage loans of the assets are loans the federal credit union is otherwise empowered to grant;
• The purchase will be made in accordance with the federal credit union’s written policies that address the risk of these investments and servicing practices; and
• The federal credit union’s board of directors or investment committee approves the purchase in advance.

The final rule goes into effect April 1, 2022.

Subordinated Debt Final Rule

In another unanimous vote, board members approved a final rule to amend the Subordinated Debt Rule.

The final rule amended the definition of “Grandfathered Secondary Capital” to include “any secondary capital issued to the United States government or one of its subdivisions under a secondary capital application approved before Jan. 1, 2022.”

According to a statement from the NCUA, “This amendment will benefit eligible low-income credit unions that are either participating in the U.S. Department of the Treasury’s Emergency Capital Investment Program or other programs administered by the U.S. government that can be used to fund secondary capital, if they do not receive the funds for such programs by Dec. 31, 2021.”

During the meeting Harper said, “The funding provided by ECIP will be a game-changer for participating MDI and CDFI credit unions and their communities. These institutions are often the only federally-insured financial institutions in underserved areas, rural districts and communities of color. In the months ahead, I encourage all credit unions to support safe, fair and affordable lending to their members.”

The final rule goes into effect Jan. 1, 2022.