Upping Threshold for ONES Supervision Seen as 'Natural Evolution' by NCUA Board

On Thursday, during its second meeting of 2022, the NCUA board approved a notice of proposed rulemaking to amend the asset threshold of large credit unions that work with the Office of National Examinations and Supervision (ONES).

According to details from the NCUA, the proposed rule would increase the asset threshold of those credit unions that fall under the enhanced supervision of ONES from $10 billion to $15 billion.

“This proposed rule is a natural evolution in the agency’s examination program as the number of large, complex credit unions increases,” NCUA Chairman Todd Harper said. “It leverages the strengths of the agency’s regional structure to ensure the NCUA can effectively and efficiently monitor potential risks associated with these institutions with existing resource allocations and it provides proper oversight of those systemically critical credit unions, which pose a significant risk to the Share Insurance Fund because of their size and complexity.”

Under the proposed rule, credit unions that fall between $10 billion and $15 billion in total assets would continue to be supervised by the appropriate NCUA Regional Office, while those large credit unions already under ONES’ supervision would continue to be supervised by the office.

Public comments concerning the notice of proposed rulemaking must be received no later than 60 days following publication in the Federal Register.

Prompt Corrective Action Relief Extended

During Thursday’s meeting, the board also approved an interim final rule that would renew two temporary changes to the NCUA’s prompt corrective action regulations that were put in place at the beginning of the pandemic to ensure credit unions remained operational and liquid.

The two changes include the following:

• Amend regulations to temporarily extend the board’s ability to issue an order applicable to all federally insured credit unions to waive the earnings retention requirement for any federally insured credit union that is classified as adequately capitalized.
• A provision that modifies the specific documentation required for net worth restoration plans for federally insured credit unions that become undercapitalized.

“For nearly two years, the pandemic has greatly affected the credit union system and our nation’s economy,” Harper said. “We, however, likely have not yet seen the full impact of the pandemic on consumer credit union balance sheets and performance. As such, the renewal of these targeted measures for another year is a prudent course of action at this time.”

The temporary modifications will be in place until March 31, 2023.

Share Insurance Fund Update

NCUA board members received an update on the general health of the Share Insurance Fund (SIF) through the end of 2021. According to data provided to the board, the SIF equity ratio currently sits at 1.26%, an increase from 1.23% in June 2021. The equity ratio was lower than the board-approved normal operating level of 1.33%.

“After another challenging year, the Share Insurance Fund continues to perform well and remains on a solid footing,” Harper said. “Overall, the credit union system has also, thus far, withstood the pandemic’s evolving economic fallout. This is a testament to the strength of the credit union system going into the pandemic and the skillful management of credit union CEOs, boards of directors and staff over the last two years.”

According to the NCUA, the SIF’s net income sits at $184.5 million, with a net position of $20.6 billion as of the end of 2021.

Seven credit union failures incurred a loss to the SIF in 2021, compared to one credit union failure in 2020. The cost of the 2021 failures was $5.6 million.