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CUNA Regulatory Comment Call

May 2, 2005

EXECUTIVE SUMMARY

• The NCUA Board is again seeking comments on some further modifications to its member business loan (MBL) rule.
• The proposal, which contains clarifications and technical changes, would address several areas. It would:
  • Clarify the minimum capital requirements a federally insured corporate credit union must meet in order to make unsecured MBLs to its members other than member credit unions and corporate credit union service organizations (corporate CUSOs). The modified provision would state that a corporate CU must maintain a minimum capital ratio of four percent or a different minimum capital ratio under special circumstances, as generally required under NCUA’s Corporate CU Rules, in order to make unsecured MBLs.
  • Amend the definition of "construction or development loan" to include loans for renovating or developing property owned by a borrower for income-producing purposes.
• Revise the phrase, "net worth" used in the MBL rule to be consistent with the definition of that phrase found in the Federal Credit Union Act and in NCUA’s prompt corrective action (PCA) regulation. Under the Act and PCA regulations, secondary capital accounts are counted in the net worth of low income-designated credit unions. The definition of net worth in the Act the PCA regulations is as follows:

  "Net worth means the retained earnings balance of the credit union at quarter end as determined under generally accepted accounting principles. Retained earnings consists of undivided earnings, regular reserves, and any other appropriations designated by management or regulatory authorities. This means that only undivided earnings and appropriations of undivided earnings are included in net worth. For low income-designated credit unions, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF. For any credit union, net worth does not include the allowance for loan and lease losses account."

• In October 2004, NCUA issued a final rule amending its MBL rule to allow credit unions to make SBA guaranteed loans under SBA's less restrictive lending requirements, rather than under NCUA's more restrictive MBL requirements. CUNA supported expanding this authority to other guaranteed loans. In response, NCUA is requesting comments on how to broaden the MBL rule to enable credit unions to participate more fully in additional government guaranteed loan programs, such as whether it would be better to expand the MBL rule to permit only specifically identified programs or to permit more favorable treatment for loans under all government guaranteed loan programs.
• Comments are due to NCUA by June 20, 2005. Please send your comments to CUNA by June 3, 2005. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposed rule, or you may access it here.

1. Do you agree with the clarification regarding corporate credit union minimum capital requirements for making unsecured MBLs?
   
   Yes _____ No _____
   
   Why or why not?
   
   

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2. Do you agree with the amendment to the definition of “construction or development loan”?
   
   Yes _____ No _____
   
   Why or why not?
   
   

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3. Do you agree that the phrase “net worth” used in the MBL rule should be revised to be consistent with the definition of that phrase found in the Act and in NCUA’s PCA regulations?
   
   Yes _____ No _____
   
   Why or why not?
   
   

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4. Do you believe that NCUA should broaden the MBL rule to enable credit unions to participate more fully in additional government guaranteed loan programs?
   
   Yes _____ No _____
   
   If not, why not? If so, would it be better to expand the MBL rule to permit only specifically identified programs or to permit more favorable treatment for loans under all government guaranteed loan programs? NCUA is particularly interested in comments that address the benefits of specific programs and any safety or soundness or operational concerns associated with them.
   
   

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5. Other comments?
   
   

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