Credit unions might be forced to decline members or their deposits if the NCUA does not take action to ease credit union net worth ratio problems caused by the pandemic, CUNA and the American Association of Credit Union Leagues warned late last week.
“Credit unions are not in the business of turning away members or their deposits, but this is a possible though unfortunate alternative that could stem declining net worth ratios,” CUNA and the state credit union league trade group wrote in a letter to the NCUA board.
The letter follows comments by NCUA board Chairman Todd Harper, who said that the agency board shortly will be considering changes to NCUA’s prompt corrective action rule.
In their letter, the trade groups ask the board to adopt an interim final rule identical to one adopted by the board last year. That rule expired at the end of 2020.
The rule permitted the NCUA board to issue an order to temporarily waive the earnings retention requirement for any credit union that is well-capitalized. The rule also allowed credit unions to submit simplified net worth restoration plans if the reduction in capital was due to share growth caused by the pandemic.
The groups said that the original rule was adopted because credit unions had an increase in share growth as a result of federal stimulus payments. With another round of stimulus payments being made, the rule is needed again, they said.
The prompt corrective action rule would not expose the agency’s Share Insurance Fund to additional stress, CUNA and the leagues wrote. The rule should remain in effect until the Centers for Disease Control or another federal entity states that the pandemic has ended, they added.
CUNA and the leagues also said that as credit union deposits have swelled during the pandemic, credit unions are increasingly investing in zero- and low-risk assets, such as short-term Treasury Department securities. The deposits and the investments have caused a drop in many credit union net worth ratios.
The groups requested that the agency exempt such low- and no-risk deposits from net worth ratio calculations.
“Since we continue to find ourselves in a ‘unique and unprecedented’ situation given the ongoing pandemic, it is imperative the agency provide additional flexibility regarding credit union capital,” they said.