CUNA stresses merger flexibility in letter to NCUA

October 2, 2017

CUNA forwarded a letter Thursday to the NCUA commenting on the agency’s proposed emergency merger rule.

As proposed, the rule would refine the current definition of the term “in danger of insolvency,” as it pertains to emergency mergers of under-capitalized credit unions (the well-capitalized threshold is 7% net worth ratio), and to expand the eligibility for emergency mergers.

The rule would extend the forecast horizons within which a credit union’s net worth is expected to either become insolvent or drop below 2% net worth ratio, from 24 to 30 months and 12 to 18 months, respectively.

The time period of 36 months in the “significantly undercapitalized” category, a lower threshold, would remain unchanged. The proposal would also provide that credit unions assisted under Section 208 of the FCUA in the 15 months prior may be deemed “in danger of insolvency.”

“Credit unions support efforts to promote efficient and timely emergency mergers, further ensuring credit union assets are afforded greater protection at a time when value preservation is essential, and members may continue to access financial services, with fewer liquidity constraints,” the letter reads.

CUNA objects to any proposed changes that would result in rigid guidelines forcing credit union mergers. The proposal would permit NCUA to act decisively at an earlier stage of resolution than current regulation permits to salvage more assets and preserve liquidity.

“In the background discussion to NCUA’s proposal, the agency notes that roughly 73 credit unions that fell below 2% net worth during the last 20 years remain active today,” the letter reads. “This illustrates the need to avoid any approach that would impose an inflexible, one-size-fits-all rubric to resolve financially-challenged institutions.”