[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