NCUA Board Takes Action on Executive Compensation, Corporate Chartering

The NCUA board has been busy! In its meeting late last week, the board issued two new proposed rules, renewed the 18% interest rate ceiling for federal credit unions, and approved a new Interpretive Ruling and Policy Statement (IRPS).

The first proposed rule deals with incentive-based compensation arrangements. Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires NCUA to issue joint rules or guidelines requiring credit unions with assets over $1 billion to report bonus or commission structures for executive officers and directors to NCUA.

The directives must also prohibit bonuses, commissions and other incentives which are provided to directors or certain credit union employees for engaging in activities on behalf of their credit unions that are tied to unsafe and unsound activities. For example, this would include commissions for engaging in risky investments for the credit unions. The law does not cover salaries or other compensation based on overall performance. Comments on the proposed rule will be due around March 30, 2011 (45 days from publication in the Federal Register). The rule can be viewed on the NCUA’s website.

The NCUA board also proposed removing credit ratings from NCUA regulations. This change is also required by Dodd-Frank. Under the new rule, a natural person credit union would need to do an internal credit analysis of the investment pursuant to a narrative standard (e.g., a rating of AA is equivalent to a “very strong capacity” to meet its financial commitments,” BBB equals an “adequate capacity,” and so forth). In addition, for counterparty transactions, the proposal would require the counterparty to meet minimum credit quality standards set by the credit union’s board, based upon external ratings, reports, analyses, opinions other third-party assessments, and so forth.

The proposal would also remove some references to credit ratings without replacing them with other requirements, and add or modify concentration limits for specific types of investments, such as municipal securities. Comments on this proposed rule will be due around April 15, 2011 (60 days from publication in the Federal Register). The rule can be viewed on the NCUA’s website.

 Finally, the IRPS approved by the NCUA board addresses chartering new corporate federal credit unions. The IRPS describes the requirements for charter applicants and includes NCUA’s standards for reviewing the feasibility of a new corporate charter. The IRPS can be viewed on the NCUA’s website.

Posted in Federal, NCUA.