NCUA Sets Reduced 2013 TCCUSF Budget at Year’s Final Open Board Meeting

At its final open meeting of the year yesterday, the National Credit Union Administration (NCUA) board of directors approved the 2013 Temporary Corporate Credit Union Stabilization Fund (TCCUSF) oversight budget, approved two credit unions’ requests to convert to community charters, and adopted final rules on alternatives to the use of credit ratings and on fidelity bond and insurance coverage.

NCUA Sets Reduced Budget for Temporary Corporate Credit Union Stabilization Fund for 2013

The NCUA board approved a budget of $6,145,000 and five full-time-equivalent positions for the TCCUSF for 2013. The new budget represents a decrease of 20 percent—or $1,565,000—from the 2012 budget of $7.71 million, and the staffing level did not change.

As the NCUA explained, the TCCUSF budget is funded from the TCCUSF itself and will have no impact on the 2013 NCUA operating budget. The TCCUSF budget includes costs regarding the NCUA Guaranteed Notes (NGN) Securities Management and Oversight Committee and other expenses to support the Corporate System Resolution Program.

Outside professional services, such as external valuation experts, tax consultants, attorneys, financial specialists and accountants, are among the expenses the budget will cover. According to the NCUA, these experts “are needed to assist NCUA” with services such as:

  • Valuing securities, which includes modeling forecasts of cash flows and credit losses;
  • Processing complex accounting transactions and developing related policies and procedures;
  • Preparing financial reports; and
  • Supporting the TCCUSF financial statement audit.

The NCUA also indicated that a marked decline in residential mortgage credit markets could significantly increase the cost of performing security valuations, and if additional funds are required, a supplemental request would be submitted to the board. However, if actual expenses are lower than the amount budgeted, funds would be returned to the TCCUSF.

NCUA Finalizes Rule on Alternatives to the Use of Credit Ratings

The board approved a final rule on alternatives to credit ratings to assess creditworthiness that will apply to federal natural person and corporate credit unions, effective 180 days after publication in the Federal Register. The rule either removes references to credit ratings in NCUA regulations or replaces such references with other standards of creditworthiness as required by the Dodd-Frank Act.

The board replaced the various Nationally Recognized Statistical Rating Organization (NRSRO)-based security creditworthiness standards in NCUA regulations with two standards: “investment grade” and “minimal amount of credit risk.”

Under the final rule, an “investment grade” security is one in which the credit union determines that the issuer has an adequate capacity to meet all financial commitments under the security for the projected life of the asset or exposure, even under adverse economic conditions. A security with a “minimal amount of credit risk” is one in which the credit union determines that the issuer has a very strong capacity to meet all financial commitments under the security for the projected life of the asset or exposure.

To evaluate the creditworthiness of a security, a credit union may consider the following factors, to the extent appropriate:

  • Credit spreads;
  • Securities-related research;
  • Internal or external credit risk assessments (including internal credit assessments, and external assessments, such as those developed by a credit rating agency);
  • Default statistics;
  • Inclusion on an index;
  • Priorities and enhancements; and
  • Price, yield, and/or volume.

The NCUA said that it plans to issue additional supervisory guidance regarding these factors on creditworthiness before the effective date of the final rule. In response to a question from Chairman Debbie Matz regarding guidance on the new standards, NCUA staff stated that it plans to focus on the due diligence aspect of the final rule and provide greater clarity on what constitutes “higher credit quality.”

NCUA Finalizes Interim Rule on Fidelity Bond Deductible

The board made permanent an interim final rule issued in May 2012 that removed references in the agency’s fidelity bond rule to the NCUA’s former Regulatory Flexibility Program (RegFlex). The final rule also revises the standard used for granting authority to a federal credit union to choose an increased deductible amount, consistent with the interim final rule.

The standard under the interim final rule that will continue is based on a federal credit union’s assets, CAMEL ratings and capital level. Before the board issued the interim final rule, the standard was based on a federal credit union’s assets and status as a RegFlex federal credit union. While the Credit Union National Association (CUNA) opposed the agency’s actions to eliminate the RegFlex program, CUNA did not oppose the interim final rule on the fidelity bond deductible standard.

NCUA Approves Requests to Convert to Community Charters

The board approved Focus Federal Credit Union’s request to convert to a community charter to serve the Oklahoma City, Okla., metropolitan statistical area. Currently, the credit union serves more than 100 select groups and two underserved areas and has $91 million in assets with 10,369 members.

The board also approved Atlantic Federal Credit Union’s request to convert to a community charter to offset a decline in membership and to direct marketing resources more efficiently. The credit union is a multiple common bond credit union in Union County, NJ, and currently has assets of $274 million, with 18,411 members.

In regards to each conversion, Matz directed the credit unions to report back in a year to provide an update on the effectiveness of their respective outreach and marketing plans.

 

Questions? Contact Director of Regulatory Advocacy John Trull: 503.350.2209, jtrull@nwcua.org.

Posted in Compliance, Compliance News, Federal, NCUA.