NCUA's proposed changes to the Limits on Loans to Other Credit Unions regulation.
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.
