UNITED STATES OF AMERICA
NATIONAL CREDIT UNION ADMINISTRATION BOARD
Section 702.106(b)(2) of the NCUA’s regulations (12 C.F.R. § 702.106(b)(2)) authorizes the NCUA Board (Board) to issue a temporary order specifying temporary revisions to the earnings-retention requirement for credit unions that are adequately capitalized to the extent the Board determines that such lesser amount: (a) is necessary to avoid a significant redemption of shares; and (b) would further the purpose of the prompt corrective action (PCA) regulations.
Furthermore, § 702.106(b)(2) provides that despite the issuance of such an administrative order, the Regional Director is authorized to require a credit union to submit an earnings transfer waiver if the credit union poses an undue risk to the National Credit Union Share Insurance Fund (NCUSIF) or exhibits material safety and soundness concerns.
For the reasons provided in an interim final rule effective on February 28, 2022, the Board extended the time-limited regulatory provision that the Board re-adopted in an April 2021 interim final rule.1
For all the reasons stated in the February 28, 2022, interim final rule, the Board has determined that decreasing the earnings-retention requirements set forth in the NCUA's regulations is necessary to avoid a significant redemption of shares and would further the purposes of the PCA regulations. These reasons include, but are not limited, to the following, as noted in the February 28, 2022, interim final rule. Share growth remains unusually high compared to pre-pandemic levels. Specifically, share growth from September 30, 2020, to September 30, 2021, exceeded 14 percent. The COVID-19 pandemic and Congressional responses to it were the initial impetus for the two previous interim final rules that temporarily amended the two PCA provisions.
While the environment that precipitated these temporary amendments has evolved, substantial uncertainties about the continued impact of the pandemic and the evolving economic environment remain. Macroeconomic uncertainty has been particularly significant over the last few months. Inflation, geopolitical tensions, and a new COVID-19 variant have introduced new economic challenges. Ultimately, the combined effects of these factors on share growth and net worth ratios could be quite significant, leading to potentially greater volatility in those measures in the year ahead. Also, the flexibilities provided by these temporary amendments have proven to benefit both the NCUA and federally insured credit unions (FICUs). The Board believes the agency can use these flexibilities judiciously to address challenges posed by the current environment and potential issues that may arise while the rule remains in effect without imposing any additional safety and soundness risk.
Accordingly, the Board hereby orders that any consumer (non-corporate) FICU whose net worth classification, as defined in part 702 of the NCUA’s regulations, is adequately capitalized between March 31, 2022, and March 31, 2023, may decrease its earnings-retention requirement as set forth in part 702 to zero.
This order is effective from April 1, 2022, through and including March 31, 2023. After that time, the usual requirements of part 702, including the earnings-retention requirement and the associated case-by-case waiver application procedures, will apply as they did without regard to 12 C.F.R. § 702.106(b)(2). This order does not apply to any credit union whose net worth classification falls below adequately capitalized.
Notwithstanding this order, the appropriate Regional Director is authorized to require any individual FICU to submit an earnings transfer waiver if the credit union poses an undue risk to the NCUSIF or exhibits material safety and soundness concerns.
NATIONAL CREDIT UNION ADMINISTRATION BOARD:
By Melane Conyers-Ausbrooks, Secretary of the Board
Dated March 22, 2022
1 87 FR 10944 (Feb. 28, 2022); 86 FR 20258 (Apr. 19, 2021). The Board first adopted the provision in a May 2020 interim final rule and re-adopted it after its expiration in 2020. 85 FR 31952 (May 28, 2020).