Samantha: Hello, this is Samantha Shares.
This episode covers N C U A's proposed changes to the Limits on Loans to
Other Credit Unions regulation.
The following is an audio version of that document.
This podcast is educational and is not legal advice.
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And now the proposal.
The N C U A Board seeks comment on a proposed rule to remove the regulations
related to approval and policies on making loans to other credit unions.
While this provision would no longer be codified in regulation, Federal
Credit Unions would remain subject to statutory requirements related
to making loans to credit unions.
Federally insured state-chartered credit unions would remain subject
to any other applicable N C U A or state law or regulation.
The Board explains that, on February twenty-third, two thousand twenty-one,
it published a final rule amending various parts of the N C U Aâs
regulations to permit low-income designated credit unions, complex
credit unions, and new credit unions to issue subordinated debt for purposes
of regulatory capital treatment.
Among other changes, that final rule established section seven zero one point
two five, governing loans by Federal Credit Unions to other credit unions.
The regulation establishes an aggregate limit on such loans of
twenty-five percent of the lending Federal Credit Unionâs paid-in and
unimpaired capital and surplus.
It also sets limits for loans to a single credit union borrower.
The regulation sets forth specific eligibility requirements and aggregate
limits for Federal Credit Unions that invest in the subordinated
debt of other credit unions.
The requirements of section seven zero one point two five are made applicable
to federally insured state-chartered credit unions through section
seven four one point two two seven.
Federal Credit Unions and federally insured state-chartered credit
unions are collectively referred to as federally insured credit unions.
In addition to the limits discussed, section seven zero one point two five
imposes documentation requirements on Federal Credit Union boards of
directors, and through section seven four one point two two seven, on
federally insured state-chartered credit union boards as well.
Paragraph b of section seven zero one point two five requires the
board of directors to approve all loans to other credit unions and
to establish written policies for managing the associated credit risk.
These policies must specify limits on the aggregate principal amount of
loans the federally insured credit union can make to all other credit
unions and to any single credit union.
Such limits may not exceed the generally applicable limits established in
section seven zero one point two five.
The Board is issuing this proposed rule pursuant to its authority
under the Federal Credit Union Act.
Under the Act, the N C U A is the chartering and supervisory authority
for Federal Credit Unions and the federal supervisory authority for
federally insured credit unions.
The Act grants the N C U A broad authority to issue regulations
governing both Federal Credit Unions and federally insured credit unions.
The Board proposes to remove paragraph b of section seven zero one point two five.
Upon reconsideration, the Board believes that the regulation is
unnecessary and overly prescriptive.
The Federal Credit Union Act already requires a Federal Credit Unionâs
board of directors to approve all loans to other credit unions.
Accordingly, for Federal Credit Unions, paragraph b of section seven zero one
point two five is largely redundant of an existing statutory requirement.
The Board further states that federally insured credit union boards are in
the best position to determine whether formal approval policies are necessary
for such loans, consistent with the number, size, and risks associated with
the credit unionâs lending practices.
Removing this regulation would provide federally insured credit
unions with greater flexibility.
The Board emphasizes that, while the proposed rule would no longer require
federally insured credit union boards to adopt written policies regarding
aggregate limits on loans to other credit unions, federally insured
credit unions would remain subject to the limits and other requirements set
forth in the remaining provisions of section seven zero one point two five.
If the proposed rule is adopted, federally insured state-chartered
credit unions would refer to state law to determine whether their boards must
approve loans to other credit unions.
The Board also explains that the proposed rule is expected
to be deregulatory in nature.
The proposal would remove documentation and policy requirements that may
impose economic costs on federally insured credit unions, while retaining
statutory and regulatory lending limits.
For the reasons stated in the preamble, the N C U A Board proposes to amend
twelve C F R part seven zero one.
Section seven zero one point two five would be amended by removing
paragraph b and redesignating paragraph c as paragraph b.
This concludes the proposed regulation.
If your credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and we thank you for listening.