Regulatory Compliance
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What is a Small Credit Union?

Tuesday, February 19th was the effective date of NCUA’s final rule amending the definition of small entity from credit unions with less than $10 million in assets to less than $50 million in assets.  So if you haven’t had a chance to read this rule because you are overworked and overstressed reading the CFPB’s mortgage rules let me give you a high level overview of the three key areas you need to know.      

 1 – Prompt Corrective Action

First and foremost the new threshold of $50 million or less excludes a greater number of credit unions form certain provisions under NCUA’s Prompt Corrective Action (PCA) Rule.  Most notably, under the current PCA rule, a credit union is defined as “complex” if it has more than $10 million in assets and has a risk based net worth of more than 6 percent.  If a complex credit union fails the risk based net worth requirements it is subject to mandatory PCA requirements that address earnings retention, restoration plans, asset maintenance and member business loans.  The definition of complex will now be amended to $50 million in assets and will reduce the number of credit unions subject to these additional regulatory burdens.   

2 – Interest Rate Risk

The asset change to $50 million or less also impacts the recent Interest Rate Risk (IRR) rule that was effective September 30, 2012.  If you recall, the IRR rule implemented a tiered system based on assets for compliance.  Small credit unions under $10 million in assets were not subject to the rule, credit unions with assets of $10 to $50 million were only subject if their Supervisory Interest Rate Risk Threshold (SIRRT) ratio exceeded 100 percent and credit unions with assets over $50 million had to comply regardless.   This rule streamlines the tiered system by simply requiring all credit unions with more than $50 million in assets to comply.   Credit unions under $50 million in assets are no longer required to comply, regardless of the make-up of their balance sheet.  

3 – Regulation Review Process

Not only does this rule impact specific sections of regulation, it also amends NCUA’s rule review process outlined in the Interpretive Ruling and Policy Statement (IRPS) 87-2.  If it has been awhile since you have looked at this IRPS, this policy statement basically spells out the process NCUA will follow when developing and reviewing their regulations. Specifically, this final rule will amend the small entity asset threshold and will also add language that requires the threshold to be reviewed within two years of the effective date of this rule and then every three years thereafter.  The three year time frame provides NCUA with a reasonable time to detect new trends in loss and risk data and is consistent with NCUA’s longstanding review period for its other regulations. 

Now that you have the basics on this rule you might want to get back to those mortgage rules.

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