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Troubled CU liquidity rules unnecessary CUNA
ALEXANDRIA, Va. (7/25/12)--A pair of proposed rules that would allow the National Credit Union Administration (NCUA) to determine when a state chartered credit union is in "troubled condition," and alter emergency liquidity requirements for natural person credit unions, are unnecessary, Credit Union National Association (CUNA) President/CEO Bill Cheney said following Tuesday's NCUA open board meeting.

Under the "troubled condition" proposed rule, the NCUA would be added to the list of regulators that may determine whether a state-chartered federally insured credit union's (FICU) financial issues are enough to label the credit union as "troubled." The NCUA would also be permitted to assign a CAMEL Code 4 or 5 rating to those credit unions.

Currently, the CAMEL rating assigned by a state supervisor alone determines if a state-chartered FICU is in "troubled condition."

The NCUA in a release noted that it has seen an increased number of credit unions with assets between $250 million and $500 million experiencing some degree of financial stress, and has increased the number of joint examinations it participates in as a result. The NCUA and state credit union regulators have, at times, issued different CAMEL scores following these examinations. "While the actual number of examinations where this has happened is relatively small, it is nonetheless significant from a supervisory perspective, particularly given the rise in credit unions experiencing stress," the NCUA said in a release.

Expanding the definition of "troubled condition," as proposed, would strengthen the oversight abilities of the NCUA and state regulators, and better protect the National Credit Union Share Insurance Fund from future losses, the NCUA said.

However, Cheney said the proposed changed to the Federal Credit Union Act's "troubled condition" definition "raises concerns about the possible impact it would have on expanding NCUA's authority and on dual chartering."

The proposed "troubled condition" definition changes will be released for a 60-day public comment period. CUNA will review the NCUA proposal with its Examination and Supervision Subcommittee, the National Association of State Credit Union Supervisors, the American Association of Credit Union Leagues and others.

The NCUA's proposed rule regarding access to emergency liquidity, which was unveiled on Tuesday, will also be released for a 60-day comment period.

Many credit unions are able to access emergency liquidity through corporate credit unions that are agents of U.S. Central Bridge Corporate FCU. U.S. Central holds stock in the NCUA's Central Liquidity Facility (CLF). However, credit unions will need to find alternate sources of emergency liquidity once U.S. Central closes, the NCUA noted.

Under the new proposal, credit unions with less than $10 million in assets would need to maintain a basic written emergency liquidity policy, but would not be required to take further action.

All FICUs with assets of $10 million or more would be required to develop contingency funding plans describing how their credit union would address liquidity shortfalls in emergency situations.

FICUs with assets of $100 million or more would be required to have access to a backup federal liquidity source for emergency situations. 

The NCUA said these credit unions can ensure access to backup liquidity by:

  • becoming a member of the CLF;
  • becoming a CLF member through a CLF agent; or
  • establishing direct borrowing access to the Federal Reserve's Discount Window.
Some credit unions with more than $100 million in assets currently do not have transaction accounts, and would not be eligible to access the Fed discount window. However, NCUA staff said Fed officials have indicated these credit unions may be able to set up a de minimis amount of transaction accounts to access the Fed discount window.

NCUA Chairman Debbie Matz said the approach outlined in the agency's proposal "provides flexibility for credit unions to reset and put in place a reliable and stable source of backup liquidity." Matz during the NCUA meeting said she is concerned about how portions of the proposal could impact small credit unions, and encouraged them to comment.

Cheney said CUNA has serious concerns about any new rule for credit unions, including in the area of liquidity. The CUNA CEO urged the agency to focus on the guidance the federal financial agencies have already produced on liquidity issues, rather than release new rules.

CUNA's System Liquidity Task Force, chaired by VyStar CU, Jacksonville, Fla., CEO Terry West, will review the liquidity proposal in detail, and will consider recommendations regarding the future of the CLF.

The agency will soon release a document detailing background information on the CLF for credit unions that may not be familiar with the fund. An NCUA webinar on the status of the CLF is being planned for Aug. 14, and another on the impact of U.S. Central's closing is being planned for October, the agency said.

For more on the NCUA meeting, use the resource link.
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