Temporary Regulatory Relief in Response to COVID-19-Prompt Corrective Action
| Published date | 19 April 2021 |
| Citation | 86 FR 20258 |
| Record Number | 2021-08027 |
| Section | Rules and Regulations |
| Court | National Credit Union Administration |
Federal Register, Volume 86 Issue 73 (Monday, April 19, 2021)
[Federal Register Volume 86, Number 73 (Monday, April 19, 2021)]
[Rules and Regulations]
[Pages 20258-20264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08027]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 702
[NCUA-2021-0046]
RIN 3133-AF19
Temporary Regulatory Relief in Response to COVID-19--Prompt
Corrective Action
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule; request for comments.
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SUMMARY: The NCUA Board (Board) is making two temporary changes to its
prompt corrective action (PCA) regulations to help ensure that
federally insured credit unions (FICUs) remain operational and liquid
during the COVID-19 pandemic. The first amends these regulations to
temporarily enable the Board to issue an order applicable to all FICUs
to waive the earnings-retention requirement for any FICU that is
classified as adequately capitalized. The second modifies these
regulations with respect to the specific documentation required for net
worth restoration plans (NWRPs) for FICUs that become undercapitalized.
These temporary modifications will be in place until March 31, 2022.
This rule is substantially similar to an interim final rule that the
Board published on May 28, 2020.
DATES: This rule is effective on April 19, 2021. Comments must be
received on or before June 18, 2021.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF19, by any of the following methods. Please send comments by one
method only.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments for Docket #NCUA-2021-
0046.
Fax: (703) 518-6319. Include ``[Your Name]--Comments on
Temporary Regulatory Relief Rule in Response to COVID-19--Prompt
Corrective Action'' in the transmittal.
Mail/Hand Delivery/Courier: Address to Melane Conyers-
Ausbrooks, Secretary of the Board, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at http://www.regulations.gov as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect, the
usual opportunity to inspect paper copies of comments in the NCUA's law
library is not currently available. After social distancing measures
are relaxed, visitors may make an appointment to review paper copies by
calling (703) 518-6540 or emailing [email protected].
FOR FURTHER INFORMATION CONTACT: Policy and Analysis: Lisa Roberson,
Director, Policy Division, Office of Examination and Insurance, at
(703) 518-6360; Legal: Marvin Shaw, Senior Staff Attorney and Thomas
Zells, Senior Staff Attorney, Office of General Counsel, at (703) 518-
6540; or by mail
[[Page 20259]]
at: National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314.
SUPPLEMENTARY INFORMATION:
I. Legal Authority
The Board is issuing this interim final rule pursuant to its
authority under the Federal Credit Union Act.\1\ The Act grants the
Board a broad mandate to issue regulations that govern both federal
credit unions and, more generally, all FICUs. For example, section 120
of the Act is a general grant of regulatory authority, and authorizes
the Board to prescribe rules and regulations for the administration of
the Act.\2\ Section 209 of the Act is a plenary grant of regulatory
authority to issue rules and regulations necessary or appropriate for
the Board to carry out its role as share insurer for all FICUs.\3\
Other provisions of the Act confer specific rulemaking authority to
address prescribed issues or circumstances.\4\ Such specific rulemaking
authority is set forth in section 216(b) with respect to PCA.\5\
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\1\ 12 U.S.C. 1751 et seq.
\2\ 12 U.S.C. 1766(a).
\3\ 12 U.S.C. 1789.
\4\ An example of a provision of the Act that provides the Board
with specific rulemaking authority is section 207 (12 U.S.C. 1787),
which is a specific grant of authority over share insurance
coverage, conservatorships, and liquidations.
\5\ 12 U.S.C. 1790d(b).
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II. Prompt Corrective Action Background
A. Statutory Provisions
In 1998, Congress enacted the Credit Union Membership Access Act
(``CUMAA'').\6\ The CUMAA amended the Federal Credit Union Act (``the
Act'') to require the NCUA to adopt, by regulation, a system of PCA
consisting of minimum capital standards and corresponding remedies to
improve the net worth of federally insured ``natural person'' credit
unions.\7\ The purpose of PCA is to ``resolve the problems of insured
credit unions at the least possible long-term loss to the [National
Credit Union Share Insurance Fund (`NCUSIF')].'' \8\
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\6\ Public Law 105-219, 112 Stat. 913 (1998).
\7\ 12 U.S.C. 1790d et seq.
\8\ 12 U.S.C. 1790d(a)(1).
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The statute designated three principal components of PCA: (1) A
framework combining mandatory actions prescribed by statute with
discretionary actions developed by the NCUA; (2) an alternative system
of PCA to be developed by the NCUA for FICUs which CUMAA defines as
``new;'' and (3) a risk-based net worth requirement to apply to FICUs
which the NCUA defines as ``complex.''
For FICUs other than those that meet the statutory definition of a
``new'' FICU, the CUMAA mandated a framework of mandatory and
discretionary supervisory actions indexed to five statutory net worth
categories:
1. Well capitalized
2. Adequately capitalized
3. Undercapitalized
4. Significantly undercapitalized, and
5. Critically undercapitalized
The mandatory actions and conditions that trigger conservatorship
and liquidation are expressly prescribed by statute.\9\ To supplement
the mandatory actions, the statute directed the NCUA to develop
discretionary actions which are ``comparable'' to the ``discretionary
safeguards'' available under section 38 of the Federal Deposit
Insurance Act, which is the statute that applies PCA to other federally
insured depository institutions.\10\
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\9\ 12 U.S.C. 1790d(e), (f), (g), and (i); 12 U.S.C.
1786(h)(1)(F); 12 U.S.C. 1786(a)(3)(A)(1).
\10\ 12 U.S.C. 1790d(b)(1)(A); S. Rep. No. 193, 105th Cong., 2d
Sess. 12 (1998) (S. Rep.); H.R. Rep. No. 472, 105th Cong; see also
12 U.S.C. 1831o (Section 38 of the Federal Deposit Insurance Act
setting forth the PCA requirements for banks).
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The Act addresses the earnings-retention requirement applicable to
FICUs that are not well capitalized.\11\ Such FICUs are required to
annually set aside as net worth an amount equal to not less than 0.4%
of their total assets.\12\ The Board has the authority to decrease the
earnings-retention requirement.\13\ To accomplish this, the Board may
issue an order if it determines the decrease is necessary to avoid a
significant redemption of shares and further the purpose of PCA--to
resolve the problems of insured credit unions at the least possible
long-term cost to the NCUSIF. The Act also requires the Board to
periodically review any order that it issues to decrease a FICU's
earnings-retention requirement.\14\
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\11\ 12 U.S.C. 1790d(e).
\12\ 12 U.S.C. 1790d(e)(1).
\13\ 12 U.S.C. 1790d(e)(2).
\14\ 12 U.S.C. 1790d(e)(2)(B).
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Separately, 12 U.S.C. 1790d(f) sets forth requirements related to
NWRPs, which FICUs must submit to the NCUA and which the NCUA must
review when a FICU becomes undercapitalized. The regulatory provisions
that address the procedures and documentation requirements for NWRPs
are codified at 12 CFR 702.206 and are detailed below.
B. Regulatory Provisions
In February 2000, the NCUA Board adopted part 702 and subpart L of
part 747, establishing a comprehensive system of PCA that combines
mandatory supervisory actions prescribed by the statute with
discretionary supervisory actions developed by the NCUA (2000 final
rule).\15\ Each of these supervisory actions index to the five
statutory net worth categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized).
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\15\ 65 FR 8560 (Feb. 18, 2000).
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In addition, the 2000 final rule permits the NCUA to impose other
action to carry out PCA beyond any discretionary supervisory action
available for a particular net worth category.\16\ In the proposal that
provided the basis for the 2000 final rule, the Board noted that part
702 also amplifies the terms of the statutory exception to the 0.4%
minimum set aside. Specifically, the Board stated that it interpreted
the phrase by order to indicate that exceptions to the 0.4% statutory
minimum are to be granted on a case-by-case basis.\17\ The Board had
historically interpreted these orders on a case-by-case basis. However,
given the current economic conditions associated with the COVID-19
pandemic--during which many FICUs broadly face similar circumstances
that affect net worth--the Board has determined it is appropriate to
implement the changes in this rule to authorize a broadly applicable
order to decrease the earnings-retention requirements for multiple
FICUs and to allow a streamlined NWRP in certain circumstances.
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\16\ 12 CFR 702.202(b)(9).
\17\ 64 FR 27090 (May 18, 1999).
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III. Temporary Amendments to Earnings Retention and NWRP Provisions
A. May 2020 Interim Final Rule
On May 21, 2020, the Board approved an interim final rule that
temporarily amended two provisions in the PCA regulations in part
702.\18\ The first amendment addressed the earnings-retention
requirement in Sec. 702.201 for FICUs classified as adequately
capitalized. The second amendment addressed the NWRPs in Sec.
702.206(c) that have become undercapitalized.
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\18\ 85 FR 31952 (May 28, 2020).
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The May 2020 interim final rule was issued in response to the
COVID-19 pandemic. It sought to ensure that FICUs continued to operate
efficiently, to ensure that FICUs maintained sufficient liquidity, and
to account for the potential temporary increase in shares that FICUs
may experience during the COVID-19 pandemic.
[[Page 20260]]
Specifically, the Board believed the temporary amendments in the
interim final rule would allow FICUs to better utilize resources by
reducing the administrative burden associated with a temporary increase
in shares.
The Board concluded that the amendments would provide FICUs with
necessary additional flexibility in a manner consistent with the NCUA's
responsibility to maintain the safety and soundness of the credit union
system. The Board made the temporary amendments effective upon
publication and specified that they would remain in place through the
end of calendar year 2020. The Board sought comment on the interim
final rule.
On June 5, 2020, pursuant to the changes made by the May 2020
interim final rule, the Board issued a temporary order decreasing the
earnings-retention requirement.\19\ Specifically, the Board determined
that, in light of the economic circumstances caused by the COVID-19
pandemic, decreasing the earnings-retention requirements set forth in
the NCUA's regulations was necessary to avoid a significant redemption
of shares and would further the purposes of the PCA regulations.
Accordingly, the Board ordered that any natural-person FICU that had a
net worth classification, as defined in part 702 of the NCUA's
regulations, of adequately capitalized between March 31, 2020, and
December 31, 2020, could decrease its earnings-retention requirement to
zero as set forth in part 702. The order was effective through, and
including, December 31, 2020.
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\19\ The Order is available on the NCUA website: https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/temporary-order-decreasing-earnings-retention-requirement.
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As noted, the Board solicited comment on the May 2020 interim final
rule. The Board received comments from a credit union trade
association, two state credit union leagues, and an organization of
state credit union supervisors. All commenters supported the interim
final rule, and no commenter opposed it. All commenters stated that the
changes were appropriate, noting that they provided regulatory relief
and flexibility to credit unions to manage their liquidity and address
financial hardships caused by the COVID-19 pandemic.
The interim final rule's two provisions expired on December 31,
2020. All commenters requested that the temporary amendments be
extended or made permanent. One commenter stated that if the economic
dislocation caused by the pandemic lingered, the regulatory relief
contemplated in the interim final rule could be necessary beyond
December 31, 2020. Among the recommendations to extend the effective
date were (1) make the rule permanent, (2) extend the applicability
until the COVID-19 pandemic was declared over by the Center for Disease
Control or other Federal agency, or (3) make the end date December 31,
2021.
B. New Interim Final Rule
Based on limited utilization of the previous relief as of December
2020, the Board did not extend these provisions but continued to
consider this issue. Considering information available following the
expiration of the 2020 interim final rule, the Board has determined it
is appropriate to readopt these amendments to the PCA regulations in
part 702 on a temporary basis. Specifically, based on the recent
congressional action (the American Rescue Plan Act of 2021) \20\ to
provide direct financial relief to individual taxpayers, the Board
anticipates that credit unions will receive a significant increase in
deposits due to stimulus checks. Accordingly, the Board has determined
it is appropriate to reinstitute the changes to the PCA provisions
previously adopted in May 2020.
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\20\ Public Law 117-2 (Mar. 11, 2021).
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In 2020, the credit union industry experienced significant asset
growth as a result of the COVID-19 pandemic. The Board believes this
growth will be temporary. This growth strained the net worth position
of credit unions, and negatively impacted many credit unions' PCA
classification. Specifically, the credit union industry experienced
asset growth--predominantly from share growth--at a rate of 17.73
percent from December 31, 2019, to December 31, 2020. During this same
period, the number of FICUs with a PCA classification of adequately
capitalized increased by 274 percent, and those classified as
undercapitalized increased by 123 percent.\21\
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\21\ Based on December 31, 2020 Call Report Data.
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The American Rescue Plan Act is the third in a series of
congressional actions to provide taxpayers monetary relief.\22\ This
action, approved in March 2021, provides relief to individual taxpayers
in the form of stimulus payments (referred to as ``recovery rebates''
in the American Rescue Plan Act). At the time of this action, the
previous stimulus payments approved by Congress in December 2020 as
part of the Consolidated Appropriations Act of 2021 were still being
distributed to qualified individuals in the form of stimulus
payments.\23\ Looking forward, the combination of both stimulus
payments will place a continued strain on FICUs' PCA classifications.
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\22\ Coronavirus Aid, Relief, and Economic Security Act, Public
Law 116-136 (Mar. 27, 2020); Consolidated Appropriations Act, 2021,
Public Law 116-260 (Dec. 27, 2020).
\23\ Public Law 116-260 (Dec. 27, 2020).
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III. Section-by-Section Analysis
A. Section 702.201--Earnings-Retention Requirement for ``Adequately
Capitalized'' FICUs
With respect to earnings retention, a FICU that is classified as
adequately capitalized or lower must increase the dollar amount of its
net worth quarterly by an amount equivalent to at least 1/10th of a
percent of its total assets and must quarterly transfer at least that
amount (for a total of 0.4% annually) from undivided earnings to its
regular reserve account every quarter until it is well capitalized.\24\
The purpose of this provision is to restore a FICU that is less than
well capitalized to a well-capitalized position in an incremental
manner.
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\24\ This relief is provided for FICUs that are required to make
an earnings retention transfer under Sec. 702.201.
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As discussed previously, Sec. 702.201 currently provides that the
Board may waive this requirement on a case-by-case basis when an
affected FICU submits a waiver application to the NCUA. The Act
provides broader authority for the Board to issue an order to waive
this requirement and does not require an application or individual
orders.\25\ In response to the COVID-19 pandemic and resulting economic
conditions, the Board has determined that it is appropriate to
temporarily amend Sec. 702.201 to provide the Board express regulatory
authority to issue a single order waiving the earnings-retention
requirement for all FICUs classified as adequately capitalized while
this temporary rule is in effect. The Board intends, as it did in its
June 2020 order, to authorize the applicable Regional Director to
require an application for an earnings transfer waiver if a particular
FICU poses undue risk to the NCUSIF or exhibits material safety and
soundness concerns.
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\25\ See 1 U.S.C. 1 (providing that unless context indicates
otherwise, words importing the singular also apply to several
persons or parties).
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Amending the regulation in this manner will allow the Board to
respond to circumstances that broadly affect many FICUs with a single
issuance rather than numerous individual waiver approvals. This
provision will be effective on the date the interim final rule is
published in the Federal Register and will expire on March 31, 2022.
[[Page 20261]]
This interim final rule will impact the processing of earnings
transfer waiver submissions listed in the following table. It will not
impact the earnings transfer waiver submissions that were due March 16,
2021, as a result of a credit union's PCA classification of adequately
capitalized (or lower), based on the Call Report for the quarter ending
of December 31, 2020.
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Earnings transfer Quarterly net Earnings transfer
Call Report effective date PCA classification waiver submission worth transfer waiver
date date date permissible
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March 31, 2021.................. April 30, 2021.... June 15, 2021..... June 30, 2021..... Yes.
June 30, 2021................... July 30, 2021..... Sept. 15, 2021.... Sept. 30, 2021.... Yes.
Sept. 30, 2021.................. Oct. 31, 2021..... Dec. 16, 2021..... Dec. 31, 2021..... Yes.
Dec. 31, 2021................... Jan. 30, 2022..... March 16, 2022.... March 31, 2022.... Yes.
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Once this regulatory amendment is in effect, the Board intends to
issue the order described above following the publication of this rule
in the Federal Register. The order will be applicable to adequately
capitalized FICUs and will grant relief from the earnings-retention
requirement without requiring those FICUs to submit applications and
receive individual waiver approvals, subject to the qualification
previously noted in this section.
The Board is exercising this authority under 12 U.S.C. 1790d(e)(2)
to enhance flexibility in the application of the earnings-retention
requirement. This relief is necessary to avoid a reduction of shares
and thus retain system liquidity and capital adequacy, thereby
furthering the purpose of PCA. As previously noted, the COVID-19
pandemic resulted in significant asset growth in the credit union
industry. This growth may impact many credit unions' PCA
classification, resulting in an increased number of credit unions being
subject to the earnings retention requirement. Based on the December
31, 2020 Call Report data, 155 credit unions are classified as less
than well capitalized and are subject to mandatory action under PCA. An
estimated 107 credit unions were classified as adequately capitalized.
These credit unions may experience relief from this rulemaking. The
potential for the impact of additional issuance of COVID-19 pandemic
relief in the form of stimulus payments could result in further
reported asset growth and result in more credit unions qualifying for
earnings retention relief. Specifically, 465 credit unions had net
worth ratios between seven and eight percent at December 31, 2020. If
these credit unions experienced substantial asset growth caused by
increased share growth, there is a potential that some of these credit
unions may also qualify for earnings retention relief during the next
twelve months.
The Board further notes that FICU operations continue to be
significantly disrupted as a result of social distancing practices,
remote work, and related complications. This regulatory relief will
lessen the administrative burden on both FICUs and the NCUA by avoiding
the effort associated with preparing a waiver application and (for the
NCUA) evaluating and responding to such applications. The Board notes
qualifications in the planned order regarding FICUs that pose undue
risk or material safety and soundness concerns will help ensure the
purpose of PCA--namely, to resolve the problems of insured credit
unions at the least possible long-term cost to the NCUSIF--is
maintained while this temporary rule is in effect.
This approach affords the agency the flexibility to address
potential difficulties FICUs face during this unprecedented period. The
Board also notes that the current, specific requirements on earnings
transfer waivers are based on a regulatory provision rather than a
specific statutory directive.\26\ Accordingly, the Board has
flexibility to modify the regulatory provision to address the financial
circumstances of individual FICUs as well as the broader credit union
system. This is consistent with the overall statutory structure of PCA,
which combines both mandatory and discretionary provisions.
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\26\ The Board notes that 12 U.S.C. 1790d(e)(1) requires
earnings retention. However, additional provisions in 12 CFR part
702, including those related to timing and the content of the
application, supplement this statutory provision.
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Expansionary monetary and fiscal policies, combined with
precautionary savings, are placing a strain on FICU net worth. The
ongoing economic impact of the COVID-19 pandemic may result in an
increase in the volatility of share balances, loan demand, and loan
losses. The resulting stress on credit union balance sheets could
potentially require an increased level of liquidity management
throughout 2021. The NCUA continues to encourage credit unions to work
with their members who are affected by the COVID-19 pandemic. Allowing
for a broad order relieving adequately capitalized FICUs from this
requirement is consistent with the statutory criteria for issuing such
an order--namely, avoiding a significant redemption of shares and
furthering the purpose of 12 U.S.C. 1790d to ``resolve the problems of
insured credit unions at the least possible long-term loss to the
Fund.'' \27\
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\27\ 12 U.S.C. 1790d(a)(1).
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Accordingly, the Board is amending Sec. 702.201 to adopt the
temporary provision to issue a broadly applicable order. The Board
plans to issue through a separate action an order consistent with this
re-adopted provision to set forth the terms of relief from the
earnings-retention requirement.
B. Section 702.206(c)--Net Worth Restoration Plans (NWRPs); Contents of
NWRP
With respect to NWRPs, the Act provides a broad directive that a
FICU that is less than adequately capitalized must submit an applicable
NWRP to the NCUA. The NCUA, by regulation, has provided additional
details to flesh out this statutory provision. Section 702.206(a) of
the NCUA's regulations specifies the schedule for filing an NWRP, and
Sec. 702.206(c) of the NCUA's regulations outlines the contents of an
NWRP.\28\
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\28\ 12 CFR 702.206(c). Under the current regulation, an NWRP
must--
Specify--
[cir] A quarterly timetable of steps the credit union will take
to increase its net worth ratio so that it becomes ``adequately
capitalized'' by the end of the term of the NWRP, and to remain so
for four (4) consecutive calendar quarters. If ``complex,'' the
credit union is subject to a risk-based net worth requirement that
may require a net worth ratio higher than six percent (6%) to become
``adequately capitalized'';
[cir] The projected amount of earnings to be transferred to the
regular reserve account in each quarter of the term of the NWRP as
required under Sec. 702.201(a), or as permitted under Sec.
702.201(b);
[cir] How the credit union will comply with the mandatory and
any discretionary supervisory actions imposed on it by the NCUA
Board under the subpart;
[cir] The types and levels of activities in which the credit
union will engage; and
[cir] If reclassified to a lower category under Sec.
702.102(b), the steps the credit union will take to correct the
unsafe or unsound practice(s) or condition(s);
Include pro forma financial statements, including any
off-balance sheet items, covering a minimum of the next two years;
and
Contain such other information as the NCUA Board has
required.
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[[Page 20262]]
The Board has determined that it is appropriate to waive the NWRP
content requirements for FICUs that become classified as
undercapitalized (those that have a net worth ratio of 4 percent to
5.99 percent) predominantly as a result of share growth. In these
cases, a FICU may submit a significantly simpler NWRP to the applicable
Regional Director noting that the FICU became undercapitalized as a
result of share growth. Specifically, a FICU would be required to
attest that its reduction in capital was caused by share growth and
that such share growth is a temporary condition due to the COVID-19
pandemic and congressional actions to provide stimulus through direct
payments to taxpayers. Federally insured, state-chartered credit unions
must comply with applicable state requirements when submitting NWRPs
for state supervisory authority approval.
When reviewing an NWRP submitted under this authority, the Regional
Director will determine if the decrease in the net worth ratio was
predominantly a result of share growth. To assess the reason for the
decrease, the Regional Director will analyze the numerator and
denominator of the net worth ratio--no change, or an increase in the
numerator and an increase in the denominator, would indicate that the
decrease in the net worth ratio was due to share growth. If there is an
increase in the denominator and a decrease in the numerator, the
Regional Director will analyze whether the decrease in the numerator
would have caused the credit union to fall to a lower net worth
classification if there were no change in the denominator. If so, the
credit union's net worth decline would not be predominantly due to
share growth and the credit union would not be eligible to submit a
streamlined NWRP.
The Board has determined it is appropriate to modify the regulation
addressing NWRPs given the continued economic disruption caused by the
COVID-19 pandemic. The ongoing disruption has led to unprecedented
expansionary monetary and fiscal policies, combined with precautionary
savings, placing a strain on FICU net worth. Accordingly, an increased
number of credit unions are experiencing PCA reclassification to lower
categories due to growth in savings. Given the current levels of
volatility of share balances, loan demand, and loan losses in the
credit union industry, the detail contained in traditional NWRPs may
not be as meaningful. Accordingly, the streamlined NWRP described in
this interim final rule will provide sufficient information to account
for current economic conditions.
Based on December 31, 2020, Call Report data, 48 credit unions
would require an NWRP to be in place or be submitted for approval based
on their PCA classification. This is an increase of 30 percent from the
37 credit unions required to have an NWRP in place or submitted for
approval when compared to PCA classifications based on December 31,
2019 Call Report data, illustrating an upward trend.
The streamlined NWRP described in the proposed rule will provide
sufficient information, based on current economic conditions, to allow
a Regional Director to determine if a credit union is prepared to
manage the volatility associated with the COVID-19 pandemic and the
impact on a credit union's financial and operational position.
As it concluded in the May 2020 interim final rule, the Board
continues to believe it will be able to fulfill its statutory duty to
evaluate an NWRP even if the plan is more concise and streamlined than
plans submitted prior to the COVID-19 pandemic. Such a streamlined
approach is acceptable because the more extensive information required
under the current requirements may not be practicable or useful under
the current situation. Further, the current requirement addresses
methods for the Board to evaluate an NWRP. The Board believes it can
determine if an NWRP is acceptable even if it lacks some of the
detailed submissions that the current regulation specifies. The Board
further notes that if a FICU falls below being adequately capitalized
because of temporary share growth, the risk is limited.
A credit union's eligibility to submit a streamlined NWRP to the
NCUA will be determined based on the effective date of the credit
union's PCA classification, as defined in part 702 of the NCUA's
regulations.\29\ The streamlined NWRP will apply, on a case-by-case
basis, to credit unions that become classified as undercapitalized
(those that have a net worth ratio of 4 percent to 5.99 percent)
predominantly as a result of share growth. A credit union that has a
PCA classification which has declined prior to the implementation of
this rule will not be able to submit a streamlined NWRP. To further
clarify, a credit union that has a PCA classification which has
declined, requiring a NWRP prior to the expiration of this interim
final rule, will be permitted to submit a streamlined NWRP as reflected
in the following table.
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\29\ 12 CFR part 702.
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Call Report effective date PCA classification date Streamlined NWRP permissible
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December 31, 2020....................... January 30, 2021............... No.
March 31, 2021.......................... April 30, 2021................. Yes.
June 30, 2021........................... July 30, 2021.................. Yes.
September 30, 2021...................... October 31, 2021............... Yes.
December 31, 2021....................... January 30, 2022............... Yes.
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IV. Regulatory Procedures
A. Administrative Procedure Act
The Board is issuing the interim final rule without prior notice
and the opportunity for public comment and the delayed effective date
ordinarily prescribed by the Administrative Procedure Act (APA).\30\
Pursuant to the APA, general notice and the opportunity for public
comment are not required with respect to a rulemaking when an ``agency
for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \31\
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\30\ 5 U.S.C. 553.
\31\ 5 U.S.C. 553(b)(3).
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The Board believes the public interest is best served by
implementing the interim final rule immediately upon publication in the
Federal Register. The Board notes that the COVID-19 pandemic is
unprecedented. It remains an evolving situation, making it difficult
[[Page 20263]]
to anticipate how disruptions caused by the pandemic will manifest
themselves in the financial system. In particular, an individual FICU
may face an emergency situation, including a downgraded capital
classification and the corresponding implications, unless it can invoke
the regulatory relief afforded by this interim final rule. Because the
unprecedented expansionary monetary and fiscal policies, combined with
precautionary savings, are placing a strain on FICU net worth, the
Board believes it has good cause to determine that ordinary notice and
public procedure are impracticable and that moving expeditiously in the
form of an interim final rule is in the best of interests of the public
and the FICUs that serve that public. The temporary regulatory changes
are necessary steps designed to alleviate potential liquidity and
resource strains including stress on capital adequacy and are
undertaken with expedience to ensure the maximum intended effects are
in place at the earliest opportunity.
Further, as an independent basis for good cause with respect to
forgoing comments before issuing the interim final rule, the Board
received comments on the May 2020 interim final rule, which addressed
identical issues as this interim final rule. All commenters supported
the proposed changes to alleviate burden on credit unions and the
agency, which largely addressed issues related to waiving certain PCA
procedures rather than substantive concerns. Accordingly, further delay
for additional comments is inconsistent with the public interest
because it would unnecessarily delay the needed relief for credit
unions.
Notwithstanding the issuance of an interim final rule without the
opportunity for advance comments, the Board values public input in its
rulemakings and believes that providing the opportunity for comment
enhances its regulations. Accordingly, the Board is soliciting comments
on this rulemaking even though this rule is being issued on an interim-
final basis. The amendments made by the interim final rule will
automatically expire on March 31, 2022 and are limited in number and
scope. For these reasons, the Board finds there is good cause
consistent with the public interest to issue the rule without advance
notice and comment.
The APA also typically requires a 30-day delayed effective date,
except for (1) substantive rules which grant or recognize an exemption
or relieve a restriction; (2) interpretative rules and statements of
policy; or (3) as otherwise provided by the agency for good cause.\32\
Because the rule relieves currently codified limitations and
restrictions, the interim final rule is exempt from the APA's delayed
effective date requirement. As an alternative basis to make the rule
effective without the 30-day delayed effective date, the Board finds
there is good cause to do so for the same reasons set forth above
regarding advance notice and opportunity for comment.
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\32\ 5 U.S.C. 553(d).
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B. Congressional Review Act.
For purposes of the Congressional Review Act,\33\ the Office of
Management and Budget (OMB) determines whether a final rule constitutes
a ``major'' rule. If the OMB deems a rule to be a ``major rule,'' the
Congressional Review Act generally provides that the rule may not take
effect until at least 60 days following its publication.
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\33\ 5 U.S.C. 801-808.
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The Congressional Review Act defines a ``major rule'' as any rule
the Administrator of the Office of Information and Regulatory Affairs
of the OMB finds has resulted in, or is likely to result in, (A) an
annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, state, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\34\
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\34\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the Board is adopting the
interim final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\35\ In light of
current market uncertainty, the Board believes that delaying the
effective date of the rule would be contrary to the public interest for
the same reasons discussed above.
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\35\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the Board will submit
the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.)
requires that OMB approve all collections of information by a Federal
agency from the public before they can be implemented. Respondents are
not required to respond to any collection of information unless it
displays a valid OMB control number. The information collection
requirements prescribed by the May 2020 interim final rule under PCA
remains in effect and are cleared under OMB control number 3133-0154.
D. Executive Order 13132
Executive Order 13132 \36\ encourages independent regulatory
agencies to consider the impact of their actions on state and local
interests. The NCUA, an independent regulatory agency (as defined in 44
U.S.C. 3502(5)), voluntarily complies with the Executive order to
adhere to fundamental federalism principles. The interim final rule
will not have substantial direct effects on the states, on the
relationship between the National Government and the states, or on the
distribution of power and responsibilities among the various levels of
government. The Board has therefore determined that this rule does not
constitute a policy that has federalism implications for purposes of
the Executive order.
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\36\ Executive Order 13132 on Federalism, was signed by former
President Clinton on August 4, 1999, and subsequently published in
the Federal Register on August 10, 1999 (64 FR 43255).
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E. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this interim final rule will not
affect family well-being within the meaning of Section 654 of the
Treasury and General Government Appropriations Act, 1999.\37\
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\37\ Public Law 105-277, 112 Stat. 2681 (1998).
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F. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the APA
\38\ or another law, the agency must prepare a regulatory flexibility
analysis that meets the requirements of the RFA and publish such
analysis in the Federal Register.\39\ Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small
entities by providing a regulatory impact analysis. For purposes of the
RFA, the Board
[[Page 20264]]
considers FICUs with assets less than $100 million to be small
entities.\40\
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\38\ 5 U.S.C. 553(b).
\39\ 5 U.S.C. 603, 604.
\40\ NCUA IRPS 15-1. 80 FR 57512 (Sept. 24, 2015).
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As discussed previously, consistent with the APA,\41\ the Board has
determined for good cause that general notice and opportunity for
public comment is unnecessary, and therefore the Board is not issuing a
notice of proposed rulemaking. Rules that are exempt from notice and
comment procedures are also exempt from the RFA requirements, including
conducting a regulatory flexibility analysis, when among other things
the agency for good cause finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest.
Accordingly, the Board has concluded that the RFA's requirements
relating to initial and final regulatory flexibility analysis do not
apply.
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\41\ 5 U.S.C. 553(b)(3)(B).
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Nevertheless, the Board seeks comment on whether, and the extent to
which, the interim final rule would affect a significant number of
small entities.
List of Subjects in 12 CFR Part 702
Credit unions, Reporting and recordkeeping requirements.
By the NCUA Board.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons set forth in the preamble, the Board amends 12 CFR
part 702 as follows:
PART 702--CAPITAL ADEQUACY
0
1. The authority citation for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
0
2. In Sec. 702.201, revise and republish the introductory text of
paragraph (b)(2) to read as follows:
Sec. 702.201 Prompt corrective action for ``adequately capitalized''
credit unions.
* * * * *
(b) * * *
(2) Notwithstanding paragraph (a) of this section, starting on
April 19, 2021 and ending on March 31, 2022, for a credit union that is
adequately capitalized:
* * * * *
0
3. In Sec. 702.206, revise and republish paragraph (c)(4) to read as
follows:
Sec. 702.206 Net worth restoration plans.
* * * * *
(c) * * *
(4) Notwithstanding paragraphs (c)(1), (2), and (3) of this
section, the Board may permit a credit union that is undercapitalized
to submit to the Regional Director a streamlined NWRP plan attesting
that its reduction in capital was caused by share growth and that such
share growth is a temporary condition due to the COVID-19 pandemic. A
streamlined NWRP plan is permitted between April 19, 2021 and March 31,
2022.
* * * * *
[FR Doc. 2021-08027 Filed 4-16-21; 8:45 am]
BILLING CODE 7535-01-P
