[Federal Register Volume 80, Number 16 (Monday, January 26, 2015)]
[Proposed Rules]
[Pages 3918-3921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01239]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / 
Proposed Rules  

[[Page 3918]]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 702

RIN 3133-AE44


Capital Planning and Stress Testing--Schedule Shift

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) is issuing proposed amendments to the 
regulation governing credit union capital planning and stress testing. 
The amendments would adjust the timing of certain events in the capital 
planning and stress testing cycles. If finalized, the revisions to the 
regulation would become effective January 1, 2016.

DATES: Comments must be received on or before March 27, 2015.

ADDRESSES: You may submit comments 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.
     NCUA Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name]--Comments on Proposed Rule--Capital Planning and Stress Testing--
Schedule Shift'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Jeremy Taylor or Dale Klein, Senior 
Capital Markets Specialists, Office of National Examinations and 
Supervision, at the above address or telephone (703) 518-6640.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Proposed Amendments
III. Regulatory Procedures

I. Background

    In April 2014, the Board issued a final rule requiring capital 
planning and stress testing for federally insured credit unions (FICUs) 
with assets of $10 billion or more.\1\ Capital planning requires 
covered credit unions to assess their financial condition and risks 
over the planning horizon under both expected and unfavorable 
conditions. Annual supervisory stress testing allows NCUA to obtain an 
independent test of these credit unions under stress scenarios. By 
setting a regulatory minimum capital ratio under stress, the final rule 
requires covered credit unions to take corrective action before they 
become undercapitalized to an extent that may cause loss to the 
National Credit Union Share Insurance Fund.
---------------------------------------------------------------------------

    \1\ 12 CFR part 702, subpart E; 79 FR 24311 (Apr. 30, 2014). The 
rule refers to FICUs with assets of $10 billion or more as ``covered 
credit unions.''
---------------------------------------------------------------------------

    The final rule provides several timeframes for the formulation and 
submission of capital plans and for the stress testing of covered 
credit unions. One critical date in the stress testing process is the 
date NCUA releases the baseline, adverse, and severely adverse economic 
scenarios that serve as basis for the testing. As noted in the preamble 
to the proposed rule, NCUA plans to base the scenarios on those 
developed by the Federal Reserve, the Federal Deposit Insurance 
Corporation, and the Office of the Comptroller of the Currency 
(collectively, the banking agencies) for their regulated 
institutions.\2\ At the time the Board issued NCUA's final rule, the 
banking agencies were scheduled to provide scenarios for their 
regulated institutions by November 15 each year.\3\ The banking 
agencies subsequently moved their scenario release dates to February 
15.\4\
---------------------------------------------------------------------------

    \2\ 78 FR 65583, 65584 (Nov. 1, 2013).
    \3\ 12 CFR 46.5, 252.144, 252.154, and 325.204.
    \4\ 79 FR 64026 (Oct. 27, 2014); 79 FR 69365 (Nov. 21, 2014); 79 
FR 71630 (Dec. 3, 2014).
---------------------------------------------------------------------------

    The Board intends to ensure that scenarios used for credit union 
stress testing essentially conform to those used by the banking 
agencies, both in substance and timing. The new schedule on which the 
banking agencies' scenarios are published necessitates NCUA's 
modification of its own stress testing schedule.
    Accordingly, this proposed rule would amend the capital planning 
and stress testing rule to change NCUA's scenario release date from 
December 1 to February 28. In addition, the Board proposes to apply a 
more uniform fixed annual timeline for both capital planning and stress 
testing required under the rule. It also proposes to reword several 
provisions in the rule to clarify their meaning. The Board seeks 
comment on all aspects of this proposal.

II. Proposed Amendments

    The proposed changes to the capital planning and stress testing 
rule are discussed in detail below.

1. Section 702.502--Definitions

    Section 702.502 of the current rule defines certain terms used in 
the capital planning and stress testing rule. The proposed rule amends 
one current definition and adds one new definition. The current rule 
defines a ``covered credit union'' as a FICU whose assets were at least 
$10 billion on March 31 of ``the current calendar year,'' which the 
Board believes may be unclear. The proposal clarifies that a covered 
credit union is one whose assets are $10 billion or more and that a 
FICU that crosses the asset threshold as of March 31 is subject to the 
capital planning and stress testing requirements of the rule in the 
following calendar year. In addition, the proposal adds a new 
definition for the term ``capital planning process'' to clarify that 
the process integrates the development of a capital planning policy 
with the formulation of a capital plan.

2. Section 702.504--Capital Planning

    Paragraph (a)(1) of current Sec.  702.504 requires a covered credit 
union to submit a capital plan by February 28 of each year based on the 
credit union's financial data as of September 30 of the preceding year. 
The proposal changes the capital plan submission date to April 30 and 
the as-of date to December 31 of the preceding year. The Board believes 
that a year-end as-of date will coincide more closely with annual 
strategic planning cycles at the covered credit unions. With the as-of 
date shifted from September 30 to December 31, the proposal 
correspondingly shifts

[[Page 3919]]

the capital plan submission date as well. The Board notes that the 
proposal provides a covered credit union four months from the as-of 
date to complete its capital plan, rather than the five months in the 
current rule. This reduces the time a covered credit union will have to 
complete its plan, but the Board believes the modification is necessary 
to enable other dates in the capital planning and stress testing cycles 
to be synchronized. The Board also believes it is sufficient time for 
covered credit unions to complete the capital planning process.

3. Section 702.505--NCUA Action on Capital Plans

    Paragraph (a) of current Sec.  702.505 provides that NCUA will 
notify a covered credit union of the acceptance or rejection of its 
capital plan within 90 calendar days of the plan's submission. The 
proposal modifies this provision to establish a fixed date of July 31, 
which is 90 days after April 30, the revised date the covered credit 
union is required to submit its capital plan to NCUA under proposed 
Sec.  702.504(a)(1). The Board has determined that agency resources 
will be more efficiently allocated with a fixed date. In addition, the 
fixed date will ensure uniform timing of NCUA acceptance or rejection 
of credit union capital plans.
    Paragraph (b) of current Sec.  702.505 enumerates the reasons NCUA 
may reject a covered credit union's capital plan including, in 
paragraph (b)(5), that NCUA finds unacceptable weakness in the plan, 
the planning analysis, or any system or process supporting the 
analysis. The proposal adds ``or policy'' to this provision, clarifying 
the Board's intention that a covered credit union's capital policy and 
plan must intersect.
    Paragraph (d) of current Sec.  702.505 provides that if NCUA 
rejects a covered credit union's capital plan, the credit union must 
update and resubmit a plan within 90 days of the rejection. For 
consistency with the other deadlines mandated by the rule, the proposal 
changes this to a fixed date of October 31. The Board notes that this 
modification will not affect the amount of time a covered credit union 
will have to update and resubmit a capital plan. The proposal still 
provides a credit union 90 days to submit a revised plan.

4. Section 702.506--Annual Supervisory Stress Testing

    Paragraph (a) of current Sec.  702.506 provides that NCUA will 
release the baseline, adverse, and severely adverse stress test 
scenarios by December 1 of each year. In light of the banking agencies' 
new scenario release date of February 15, as discussed above, the 
proposal likewise shifts NCUA's release date to February 28. The 
proposal also shifts the as-of date for financial data from September 
30 to December 31, for consistency with the changes affecting the 
capital planning process. In addition, the proposal deletes a redundant 
reference in paragraph (a) that requires a credit union to include the 
stress test results in the following year's capital plan, as the 
requirement is contained in paragraph (g).
    Paragraph (c) of current Sec.  702.506 provides that after NCUA has 
conducted three consecutive stress tests, a covered credit union may, 
with NCUA approval, conduct its own stress tests. It states that a 
credit union must submit its request to conduct the tests by July 31 
and that NCUA will approve or disapprove the request by August 31. 
Consistent with the other proposed date shifts described above, the 
proposal moves the request date to October 31 and the response date to 
November 30. The proposal also adds language to paragraph (c) to 
clarify that a covered credit union must be subject to three NCUA-run 
stress tests before it seeks self-testing authority. This clarifying 
language makes paragraph (d) redundant, so the proposal deletes it. The 
proposal also redesignates paragraphs (e) through (i) as paragraphs (d) 
through (g), respectively.
    Paragraph (g) of current Sec.  702.506 states that NCUA will 
provide each covered credit union with its stress test results by May 
31. Redesignated paragraph (f) of the proposal shifts that date to July 
31.
    Paragraph (h) of current Sec.  702.506 states that if the NCUA-run 
stress tests show a covered credit union cannot maintain a stress test 
capital ratio of at least 5 percent, the credit union must provide 
NCUA, within 90 days of receipt of the stress test results, a stress 
test capital enhancement plan showing how it will meet the target. For 
consistency with the other deadlines in the rule, redesignated 
paragraph (g) of the proposal changes this to a fixed date of October 
31, which is still 90 days from the time NCUA provides stress test 
results to the covered credit union.

5. Table Summarizing Proposed Date Changes

    The following table summarizes the proposed changes to the annual 
timelines provided in the capital and stress testing rule.

  Table 1--Revised Annual Capital Planning and Stress Testing Timelines
------------------------------------------------------------------------
        Action required            Current rule        Proposed rule
------------------------------------------------------------------------
As-of date for covered credit   September 30.....  December 31.
 union's capital plan and NCUA
 stress test data.
NCUA releases stress test       December 1.......  February 28.
 scenarios.
Covered credit union submits    February 28......  April 30.
 capital plan to NCUA
 (incorporating credit union-
 run stress tests, if
 authorized).
NCUA provides NCUA-run stress   May 31...........  July 31.
 test results to covered
 credit union.
NCUA accepts or rejects         Within 90 days of  July 31.
 covered credit union's          plan's
 capital plan.                   submission.
Covered credit union submits    Within 90 days of  October 31.
 stress test capital             receipt of test
 enhancement plan, if required.  results.
Covered credit union submits    Within 90 days of  October 31.
 revised capital plan, if        NCUA rejection.
 required.
Covered credit union requests   July 31..........  October 31.
 authority to conduct stress
 tests.
NCUA approves or declines       August 31........  November 30.
 covered credit union's
 request to conduct stress
 tests.
------------------------------------------------------------------------

III. Regulatory Procedures

a. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
of any significant economic impact any proposed regulation may have on 
a substantial number of small entities (primarily those under $50 
million in assets).\5\ Because the proposed rule only applies to FICUs 
with $10 billion or more in assets, it will not have any economic 
impact on small credit unions.
---------------------------------------------------------------------------

    \5\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

b. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities

[[Page 3920]]

or increases an existing burden.\6\ For purposes of the PRA, a 
paperwork burden may take the form of a reporting or recordkeeping 
requirement, both referred to as information collections. The proposed 
changes to part 702 do not impose any new information collection 
requirements, and there is no new burden.
---------------------------------------------------------------------------

    \6\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

c. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. 
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 proposed rule does 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. NCUA has, 
therefore, determined that this proposal does not constitute a policy 
that has federalism implications for purposes of the executive order.

d. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this proposed rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

List of Subjects in 12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board, on January 
15, 2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the National Credit Union 
Administration proposes to amend 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. Amend Sec.  702.502 by adding a definition of ``Capital planning 
process'' in alphabetical order and revising the definition of 
``Covered credit union'' to read as follows:


Sec.  702.502  Definitions.

* * * * *
    Capital planning process means development of a capital policy and 
formulation of a capital plan that conforms to this policy.
    Covered credit union means a federally insured credit union whose 
assets are $10 billion or more. A credit union that crosses the asset 
threshold as of March 31 is subject to the capital planning and stress 
testing requirements of this subpart in the following calendar year.
* * * * *
0
3. Amend Sec.  702.504 by revising paragraph (a)(1) to read as follows:


Sec.  702.504  Capital planning.

    (a) * * *
    (1) A covered credit union must develop and maintain a capital 
plan. It must submit this plan and its capital policy to NCUA by April 
30 each year, or such later date as directed by NCUA. The plan must be 
based on the credit union's financial data as of December 31 of the 
preceding calendar year, or such other date as directed by NCUA. NCUA 
will assess whether the capital planning and analysis process is 
sufficiently robust in determining whether to accept a credit union's 
capital plan.
* * * * *
0
4. Amend Sec.  702.505 by revising paragraphs (a), (b)(5), and (d) to 
read as follows:


Sec.  702.505  NCUA action on capital plans.

    (a) Timing. NCUA will notify the covered credit union of the 
acceptance or rejection of its capital plan by July 31 of the year in 
which the credit union submitted its plan.
    (b) * * *
    (5) NCUA finds unacceptable weakness in the capital plan or policy, 
the capital planning analysis, or any critical system or process 
supporting capital analysis;
* * * * *
    (d) Resubmission of a capital plan. If NCUA rejects a credit 
union's capital plan, the credit union must update and resubmit an 
acceptable capital plan to NCUA by October 31 of the year in which the 
credit union submitted its plan. The resubmitted capital plan must, at 
a minimum, address:
    (1) NCUA-noted deficiencies in the credit union's original capital 
plan or policy; and
    (2) Remediation plans for unresolved supervisory issues 
contributing to the rejection of the credit union's original capital 
plan.
* * * * *
0
5. Amend Sec.  702.506 by:
0
a. Revising the first two sentences of paragraph (a);
0
b. Revising paragraph (c);
0
b. Removing paragraph (d);
0
c. Redesignating paragraphs (e) through (i) as (d) through (h), 
respectively; and
0
d. Revising newly redesignated paragraphs (d) through (g).
    The revisions read as follows:


Sec.  702.506  Annual supervisory stress testing.

    (a) General requirements. The supervisory stress tests consist of 
baseline, adverse, and severely adverse scenarios, which NCUA will 
provide by February 28 of each year. The tests will be based on the 
credit union's financial data as of December 31 of the preceding 
calendar year, or such other date as directed by NCUA. * * *
* * * * *
    (c) Credit union-run tests under NCUA supervision. After NCUA has 
completed three consecutive supervisory stress tests of a covered 
credit union, the covered credit union may, with NCUA approval, conduct 
the tests described in this section. A covered credit union must submit 
its request to NCUA to conduct its own stress test by October 31 for 
the following annual cycle. NCUA will approve or decline the credit 
union's request by November 30 of the year in which the credit union 
submitted its request. NCUA reserves the right to conduct the tests 
described in this section on any covered credit union at any time. 
Where both NCUA and a covered credit union have conducted the tests, 
the results of NCUA's tests will determine whether the covered credit 
union has met the requirements of this section.
    (d) Potential impact on capital. In conducting stress tests under 
this subpart, NCUA or the covered credit union will estimate the 
following for each scenario during each quarter of the stress test 
horizon:
    (1) Losses, pre-provision net revenues, loan and lease loss 
provisions, and net income; and
    (2) The potential impact on the stress test capital ratio, 
incorporating the effects of any capital action over the 9-quarter 
stress test horizon and maintenance of an allowance for loan losses 
appropriate for credit exposures throughout the horizon. NCUA or the 
covered credit union will conduct the stress tests without assuming any 
risk mitigation actions on the part of the covered credit union, except 
those existing and identified as part of the covered credit union's 
balance sheet, or off-balance sheet positions, such as asset sales or 
derivatives positions, on the date of the stress test.
    (e) Information collection. Upon request, the covered credit union 
must

[[Page 3921]]

provide NCUA with any relevant qualitative or quantitative information 
requested by NCUA pertinent to the stress tests under this section.
    (f) Stress test results. NCUA will provide each covered credit 
union with the results of the stress tests by July 31 of the year in 
which it conducted the tests. A credit union conducting its own stress 
tests must incorporate the test results in its capital plan.
    (g) Supervisory actions. If NCUA-run stress tests show that a 
covered credit union does not have the ability to maintain a stress 
test capital ratio of 5 percent or more under expected and stressed 
conditions in each quarter of the 9-quarter horizon, the credit union 
must provide NCUA, by October 31 of the calendar year in which NCUA 
conducted the tests, a stress test capital enhancement plan showing how 
it will meet that target. If credit union-run stress tests show that a 
covered credit union does not have the ability to maintain a stress 
test capital ratio of 5 percent or more under expected and stressed 
conditions in each quarter of the 9-quarter horizon, the credit union 
must incorporate a stress test capital enhancement plan into its 
capital plan. Any affected credit union operating without a stress test 
capital enhancement plan accepted by NCUA may be subject to supervisory 
actions on the part of NCUA.
* * * * *
[FR Doc. 2015-01239 Filed 1-23-15; 8:45 am]
BILLING CODE 7535-01-P