NCUA approves CUNA-requested changes to capital, MBL regs

April 23, 2020

The NCUA Board this week unanimously approved by notation vote an interim final rule amending the agency’s capital adequacy and member business loans and commercial lending regulations following the creation of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). CUNA requested clarity on treatment of PPP loans for MBL purposes in a letter to NCUA last week.

“CUNA, Leagues and credit unions thank NCUA for moving quickly to resolve the concerns we brought them last week,” said CUNA President/CEO Jim Nussle. “The more clarity America’s credit unions have on these loans, the quicker they can deploy needed capital to their communities.”

NCUA Chairman Rodney Hood said the changes “ensure that credit unions can participate in the program without worrying about the potential for increased regulatory burdens or capital requirements. They will also help credit unions support the financial and credit needs of businesses and entrepreneurs in their communities.”

The CARES Act, which created the PPP, requires PPP loans receive a 0% risk weighting under NCUA’s risk-based capital requirements. To reflect this statutory requirement, the interim final rule amends the NCUA’s capital adequacy regulation so that covered PPP loans receive a 0% risk weight in the agency’s risk-based net worth requirements.

Also under the interim final rule, if a loan is pledged as collateral for a non-recourse loan provided through the Federal Reserve System’s PPP Lending Facility, the covered loan can be excluded from a credit union’s calculation of total assets for the purposes of calculating its net worth ratio.

This ensures that credit unions can neutralize the regulatory capital effects of PPP loans pledged to the facility.

The interim final rule also makes a conforming change to the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule.

Under the rule, PPP loans are excluded from the definition of a commercial loan because the unique nature of these loans mitigates the need for enhanced commercial underwriting.

The interim final rule is effective upon publication in the Federal Register and there is a 30-day comment period.