[Federal Register Volume 87, Number 39 (Monday, February 28, 2022)]
[Rules and Regulations]
[Pages 10944-10950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03845]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 702

[NCUA-2022-0005]
RIN 3133-AF19


Prompt Corrective Action: Earnings Retention Waivers and Net 
Worth Restoration Plans

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule.

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SUMMARY: The NCUA Board (Board) is extending 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 crisis. The first amends these regulations to 
temporarily extend the Board's ability 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 extends a provision 
that modifies the specific documentation required for net worth 
restoration plans (NWRPs) for FICUs that become undercapitalized. These 
temporary modifications will remain in place until March 31, 2023. This 
rule is substantially similar to an interim final rule that the Board 
published on April 19, 2021 (``2021 PCA interim final'').

DATES: This rule is effective on February 28, 2022. Comments must be 
received on or before April 29, 2022.

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: https://www.regulations.gov. 
Follow the instructions for submitting comments for Docket # NCUA-2022-
0055.
     Fax: (703) 518-6319. Include ``[Your Name]--Comments on 
``Prompt Corrective Action: Earnings Retention Waivers and Net Worth 
Restoration Plans'' in the transmittal.
     Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on the Federal 
eRulemaking Portal at https://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 currently unavailable. 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: Kathryn Metzker, 
Risk Officer, or Victoria Nahrwold, Associate Director, 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 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

[[Page 10945]]

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) about 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\ 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\ The PCA section of 
the Act does not apply to corporate credit unions.\9\
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    \6\ Pub. L. 105-219, 112 Stat. 913 (1998).
    \7\ 12 U.S.C. 1790d et seq.
    \8\ 12 U.S.C. 1790d(a)(1).
    \9\ 12 U.S.C. 1790d(m). Part 704, which this rulemaking does not 
affect, applies capital and PCA requirements to corporate credit 
unions.
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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.'' Besides those FICUs that meet 
the statutory definition of a ``new'' FICU, CUMAA mandated a framework 
of mandatory and discretionary supervisory actions indexed to five 
statutory net worth categories. These categories are: ``well 
capitalized,'' ``adequately capitalized,'' ``undercapitalized,'' 
``significantly undercapitalized,'' and ``critically 
undercapitalized.'' The mandatory actions and conditions triggering 
conservatorship and liquidation are expressly prescribed by 
statute.\10\ 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.\11\
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    \10\ 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).
    \11\ 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.\12\ Such FICUs are required to 
annually set aside as net worth an amount equal to not less than 0.4 
percent of their total assets.\13\ The Board has the authority to 
decrease the earnings retention requirement.\14\ To do this, the Board 
may issue an order if it determines that the decrease is necessary to 
avoid a significant redemption of shares and further the purpose of 
that PCA provision of the Act. The Act also requires the Board to 
periodically review any order issued under that section.\15\
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    \12\ 12 U.S.C. 1790d(e).
    \13\ 12 U.S.C. 1790d(e)(1).
    \14\ 12 U.S.C. 1790d(e)(2).
    \15\ 12 U.S.C. 1790d(e)(2)(B).
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    Separately, the Act sets forth requirements related to NWRPs, which 
FICUs must submit to the NCUA when it becomes undercapitalized.\16\ The 
regulatory provisions addressing the procedures and documentation 
requirements for NWRPs are codified at 12 CFR 702.111 and are detailed 
below.
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    \16\ 12 U.S.C. 1790d(f).
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B. Regulatory Provisions

    In February 2000, the 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).\17\ Each 
of these supervisory actions is indexed to the five statutory net worth 
categories noted above. The 2000 final rule also permits the NCUA to 
impose ``other action to better carry out the purpose of PCA'' than any 
discretionary supervisory action available in that category.\18\ In the 
proposal that provided the basis for the 2000 final rule, the Board 
noted that ``[p]art 702 also amplifies the terms of the statutory 
exception to the 0.4 percent minimum set aside. Specifically, the Board 
stated that it interprets the phrase by order to indicate that 
exceptions to the 0.4 percent statutory minimum are to be granted on a 
case-by-case basis.'' \19\ But the Board revisited this interpretation 
in the May 2020 interim final rule on this subject, finding that the 
Act does not require FICUs to send a specific application or the NCUA 
to issue individual orders for each FICU.\20\ The Board also notes that 
the current, specific requirements on earnings retention waivers are 
based on a regulatory provision rather than a specific statutory 
directive.\21\ Thus, issuing a broadly applicable order is consistent 
with the overall statutory structure of PCA, which combines both 
mandatory and discretionary provisions. During the COVID-19 pandemic, 
many FICUs have broadly faced similar economic circumstances that 
affect net worth and earnings. Given these experiences, and the 
potential for similar volatility and uncertainty in the future, the 
Board has determined it is appropriate to implement the changes in this 
rule to extend the provisions that 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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    \17\ 65 FR 8560 (Feb. 18, 2000).
    \18\ 12 CFR 702.107(b)(9), which applies to undercapitalized 
FICUs.
    \19\ 64 FR 27090 (May 18, 1999).
    \20\ 85 FR 31952, 31954 (May 28, 2020).
    \21\ 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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III. Recent Interim Final Rules

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.\22\ The first amendment addressed the earnings retention 
requirement in Sec.  702.201 for FICUs classified as adequately 
capitalized.\23\ The second amendment addressed the NWRPs for FICUs in 
Sec.  702.206(c) that have become undercapitalized.\24\
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    \22\ 85 FR 31952 (May 28, 2020) (``2020 PCA interim final 
rule'').
    \23\ As detailed subsequently in this preamble, the NCUA's 2015 
final rule (80 FR 66626 (Oct. 29, 2015)) on risk-based capital went 
into effect on January 1, 2022, and amended certain provisions in 
part 702. As a result, the earnings retention requirement in Sec.  
702.201 was moved to Sec.  702.106. Accordingly, this interim final 
rule implements the amendment made by the 2020 and 2021 PCA interim 
final rules to Sec.  702.201 in Sec.  702.106.
    \24\ As detailed subsequently in this preamble, the NCUA's 2015 
final rule on risk-based capital went into effect on January 1, 
2022, and amended certain provisions in part 702. As a result, the 
requirements for NWRPs in Sec.  702.206(c) were moved to Sec.  
702.111(c). Accordingly, this interim final rule implements the 
amendment made by the 2020 and 2021 PCA interim final rules to Sec.  
702.206(c) in current Sec.  702.111(c).

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[[Page 10946]]

    The May 2020 interim final rule was issued in response to the 
COVID-19 pandemic and sought to ensure that FICUs continue to operate 
efficiently, to ensure that FICUs maintain sufficient liquidity, and to 
account for the potential temporary increase in shares that FICUs may 
experience during the COVID-19 pandemic. 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.\25\ Specifically, the Board determined 
that, due to 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. 
This action would further the purposes of the PCA regulations. 
Accordingly, the Board ordered that any consumer FICU whose net worth 
classification, as defined in part 702 of the NCUA's regulations, was 
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.\26\
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    \25\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/temporary-order-decreasing-earnings-retention-requirement.
    \26\ 12 CFR 702.301. The term consumer FICU is being used 
instead of the term natural person FICU. This terminology is being 
used for clarity, however, the term natural person FICU will 
continue to be used for the accompanying regulatory text changes for 
consistency with other sections of the NCUA's regulations.
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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 COVID-19.
    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 lingers, the regulatory relief may 
be necessary beyond the end of 2020. Among the recommendations to 
extend the effective date were: (1) Making the rule permanent; (2) 
extending the applicability until the COVID-19 pandemic was declared 
over by the Center for Disease Control or other Federal agency; or (3) 
making the end date December 31, 2021.

B. April 2021 Interim Final Rule

    Based on information available in December 2020, the Board did not 
extend these provisions but continued to consider this issue. In light 
of new facts and circumstances, the Board subsequently determined in 
April 2021 that it was appropriate to reinstate these amendments to the 
PCA regulations in part 702 on a temporary basis.\27\ Specifically, 
based on the enactment of the American Rescue Plan Act of 2021 \28\ to 
provide direct financial relief to individual taxpayers, the Board 
expected that credit unions would receive a significant increase in 
deposits due to stimulus checks. Accordingly, the Board determined that 
it was appropriate to reinstitute the changes to the PCA provisions 
that had been adopted in May 2020. The Board also sought comments in 
the April 2021 interim final rule.
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    \27\ 86 FR 20258 (Apr. 19, 2021).
    \28\ Pub. L. 117-2 (Mar. 11, 2021).
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    The NCUA received seven substantive comments in response to the 
interim final rule, all of which offered support. Commenters stated 
that the interim final rule provides assistance to FICUs that have 
experienced pandemic-related hardships; reduces regulatory burden; does 
not unduly increase risk to the NCUSIF; allows otherwise healthy FICUs 
to focus on serving members without discouraging deposits; provides 
FICUs and the NCUA flexibility during a time of unprecedented deposit 
growth; and helps ensure the relief is available throughout the 
pandemic and resulting economic turbulence. Commenters also addressed 
the duration of the extension, requesting that the termination date 
either be extended beyond March 31, 2022, or be made permanent.

C. This Interim Final Rule

    As noted above, the two temporary PCA-related provisions are set to 
expire on March 31, 2022. Based on the agency's experience and lessons 
learned during the last two years as well as the ongoing economic 
fallout related to the COVID-19 pandemic, the Board has determined that 
it is appropriate to issue another interim final rule to extend these 
provisions until March 31, 2023. Share growth remains unusually high 
compared to pre-pandemic levels. Specifically, share growth from 
September 30, 2020, to September 30, 2021, exceeded 14 percent.\29\ The 
COVID-19 pandemic and Congressional responses to it were the initial 
impetus for the two previous interim final rules that temporarily 
amended the two PCA provisions. While the environment that precipitated 
these temporary amendments has evolved, substantial uncertainties about 
the continued impact of the pandemic and the evolving economic 
environment remain. Macroeconomic uncertainty has been particularly 
significant over the last few months. Inflation, geopolitical tensions, 
and a new COVID-19 variant have introduced new economic challenges. 
Ultimately, the combined effects of these factors on share growth and 
net worth ratios could be quite significant, leading to potentially 
greater volatility in those measures in the year ahead.
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    \29\ Average annual share growth in the 10 years preceding the 
pandemic was only 5.8 percent.
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    Also, the flexibilities provided by these temporary amendments have 
proven to benefit both the NCUA and FICUs. The Board believes the 
agency can use these flexibilities judiciously to address challenges 
posed by the current environment and potential issues that may arise 
while the rule remains in effect without imposing any additional safety 
and soundness risk. Accordingly, the Board believes it is appropriate 
to extend these provisions until March 31, 2023. The Board requests 
comments on all aspects of this interim final rule.
    The Board notes that this interim final rule incorporates new 
amendatory language given that the agency's 2015 final rule on risk-
based capital amended certain provisions in part 702.\30\ Specifically, 
that final rule amended part 702 by removing Sec. Sec.  702.201 and 
702.206 and moving them, mostly unchanged, to new Sec. Sec.  702.106 
and

[[Page 10947]]

702.111. As a result, the current regulatory text does not reflect the 
April 2021 interim final rule. Because the Board is extending this 
authority, it is revising the affected provisions to include these 
authorities to run from the effective date of this interim final rule 
until March 31, 2023, to ensure there is no interruption in the 
flexibility.
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    \30\ 80 FR 66626 (Oct. 29, 2015).
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IV. Section-by-Section Analysis

A. Section 702.106--Earnings Retention Requirement for ``Adequately 
Capitalized'' FICUs

    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 
retain at least that amount (for a total of 0.4 percent annually) every 
quarter until it is ``well capitalized.'' \31\ 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. The Board notes 
that newly chartered FICUs are excluded from this relief given that the 
relief is intended for FCUs experiencing growth as a result of the 
COVID-19 pandemic.
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    \31\ This relief is provided for FICUs that are required to 
retain earnings under Sec. Sec.  702.106, 702.107, 702.108, and 
702.109.
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    As discussed previously, current Sec.  702.106 provides that the 
Board may waive this requirement on a case-by-case basis upon 
application by an affected FICU. 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.\32\ In response to recent 
economic conditions, there were previous infusions of stimulus funds 
and an increased propensity for consumers to save due to the variety of 
pandemic-related circumstances. Thus, the Board has determined that it 
is appropriate to extend its decision to amend Sec.  702.106 
temporarily to provide express regulatory authority for the Board to 
issue a single order waiving the earnings retention requirement for all 
FICUs that are classified as adequately capitalized during this time. 
As with the previous orders issued under the May 2020 and April 2021 
interim final rules, the Board would provide in the order that the 
applicable Regional Director has authority to subsequently require an 
application if a particular FICU poses undue risk to the NCUSIF or 
exhibits material safety and soundness concerns. Extending this 
regulatory provision will allow the Board to respond to circumstances 
broadly affecting many FICUs with a single issuance rather than 
numerous individual waiver approvals. This provision will expire on 
March 31, 2023.
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    \32\ 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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    In a separate action that will be published on the NCUA website 
after this interim final rule becomes effective, the Board intends to 
issue the order described above, which 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 noted 
above.
    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. The Board believes that this relief remains necessary to 
avoid a reduction of shares and thus retain system liquidity and 
capital adequacy, thereby furthering the purpose of PCA. Economic 
uncertainty caused by the COVID-19 pandemic and its effect on the 
economy have resulted in significant asset growth within the credit 
union industry. This growth may impact the PCA classification of many 
credit unions, resulting in an increased number of credit unions being 
subject to the earnings retention requirement. Based on the September 
30, 2021, Call Report, 223 credit unions are classified as less than 
well capitalized and are thus subject to the earnings retention 
requirement. Of those, 42 percent report negative earnings as of 
September 30, 2021. With continued uncertainty caused by the COVID-19 
pandemic, the credit union system continues to experience the effects 
of pandemic-related share growth and additional credit unions may be 
subjected to the earnings retention requirement. A comparison of Call 
Report data from March 31, 2020, to September 30, 2021, reveals 101 
credit unions experienced a decline in their PCA classification from 
``well capitalized'' to ``adequately capitalized'' from March 31, 2020, 
despite having reported a positive return on average assets in 
September 2021. This illustrates the continued impact of the flight to 
safety experienced by the industry.
    Specifically, during the time period that the two interim final 
rules have been effective, the Board issued orders providing that any 
consumer FICU that had a net worth classification, as defined in part 
702 of the NCUA's regulations, of adequately capitalized could decrease 
its earnings-retention requirement to zero as set forth in part 702. 
These orders enabled FICUs to better utilize resources by eliminating 
the need to request a waiver of the earnings-retention requirement from 
their Regional Director. While the interim final rules and earnings-
retention orders have been in effect, the number of FICUs that 
benefitted from this relief has varied from an estimated 77 FICUs as of 
June 2020 to as many as 179 as of June 30, 2021, based on Call Report 
data. The FICUs benefitting from the earnings-retention requirement 
reduction have assets representing less than one percent of industry 
assets as of September 30, 2021. Accordingly, the Board believes that 
this amendment and the implementing orders have not posed an undue risk 
to the NCUSIF.
    The Board further notes that FICU operations continue to be 
significantly disrupted due to social distancing practices, remote 
work, supply chain disruption, and related complications. Also, the 
unprecedented amount of fiscal stimulus and decreased spending 
opportunities have led to a significant increase in the personal saving 
rate over the last two years. This, in turn, has resulted in 
extraordinary share growth, leaving net worth ratios artificially 
depressed.
    Given current macroeconomic conditions, downward pressure on net 
worth ratios will likely persist in the coming year. Although consumer 
spending has rebounded somewhat, the amount of excess savings--the 
accumulation of savings over and above pre-pandemic levels--remains 
significant and is not likely to abate any time soon. Consumer spending 
on services--the most significant share of expenditures--continues to 
lag, as the pandemic is resulting in consumers spending less on travel 
and other activities that are highly social and could potentially 
expose them to COVID-19. Also, strong gains in employment are 
supporting incomes and certain loan forbearance programs--which 
decrease debt service payments--still remain in effect.
    By avoiding the need for numerous waiver applications and 
responses, the simplified procedure that this interim final rule 
extends will reduce the administrative burden on FICUs and the NCUA. 
The Board notes qualifications in the planned order regarding FICUs 
that pose undue risk or material safety and soundness concerns will 
help ensure that the purposes of PCA are maintained during this time.

B. Section 702.111--NWRPs; Contents of NWRP

    As for NWRPs, the Act provides a broad directive that a FICU that 
is less than adequately capitalized must submit

[[Page 10948]]

an applicable NWRP to the NCUA. The NCUA, by regulation, has provided 
additional details to supplement this statutory provision. Section 
702.111(a) of the NCUA's regulations specifies the schedule for filing 
the plan, and Sec.  702.111(c) of the NCUA's regulations outlines the 
contents of a NWRP.
    The Board has decided that it is appropriate to continue waiving 
the NWRP content requirements for FICUs that become classified as 
undercapitalized predominantly as a result of share growth for Call 
Reports filed for the periods effective March 31, 2022, June 30, 2022, 
September 30, 2022, and December 31, 2022. In these cases, the FICU may 
submit a significantly simpler NWRP to the applicable Regional Director 
noting that the FICU's PCA classification fell to undercapitalized 
because 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. Federally insured, state-chartered credit unions must comply 
with applicable state requirements when submitting NWRPs for state 
supervisory authority approval.
    When reviewing NWRPs 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. If there is no change, or if there 
is an increase in the numerator and an increase in the denominator, 
this 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 FICU to fall to a lower 
net worth classification if there were no change in the denominator. If 
so, the FICU's net worth decline would not be predominantly due to 
share growth, and thus the FICU would not be eligible to submit a 
streamlined NWRP.
    The Board has determined it is appropriate to extend this 
regulatory flexibility for NWRPs given the continued economic 
disruption and the corresponding uncertainty caused by the COVID-19 
pandemic.
    Since the Board published the interim final rule on May 28, 2020, 
permitting FICUs that become classified as undercapitalized as a result 
of share growth to submit a streamlined NWRP, fourteen credit unions 
have submitted such streamlined NWRPs. Of the fourteen streamlined 
NWRPs submitted, nine NWRPs were approved, and five streamlined NWRPs 
were denied. The denials of the streamlined NWRPs were based on those 
FICUs' decline in PCA classification being the result of other economic 
factors, and not predominantly the result of share growth. Further, the 
Board notes that the FICUs submitting streamlined NWRPs were generally 
smaller, or non-complex credit unions, thus presenting limited risk to 
the NCUSIF.
    Based on September 30, 2021, Call Report data, 59 FICUs would 
require a NWRP to be in place or be submitted for approval based on 
their PCA classification. This is an increase of over 22 percent from 
the 48 credit unions required to have a NWRP to be in place or be 
submitted for approval based on December 31, 2020, Call Report data, 
illustrating an upward trend.
    The streamlined NWRP will provide sufficient information, based on 
current economic conditions, to determine if the credit union is 
prepared to manage the volatility associated with the COVID-19 pandemic 
and the impact on the FICU's financial and operational position.
    As it concluded in the April 2021 interim final rule, the Board 
continues to believe it can fulfill its statutory duty to evaluate the 
NWRPs even if the plans are more concise and streamlined than plans 
submitted before 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. The Board believes it can determine if a plan is acceptable 
even if it lacks some of the detailed submissions that the permanent 
regulatory provision requires.
    A FICU'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.\33\ 
The streamlined NWRP will apply on a case-by-case basis to 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. To further clarify, a FICU that has a declined PCA 
classification will be permitted to submit a streamlined NWRP as 
reflected in the following table.
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    \33\ 12 CFR part 702.

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       Call Report effective sate             PCA classification sate           Streamlined NWRP permissible
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March 31, 2022..........................  April 30, 2022.................  Yes.
June 30, 2022...........................  July 30, 2022..................  Yes.
September 30, 2022......................  October 31, 2022...............  Yes.
December 31, 2022.......................  January 30, 2023...............  Yes.
March 31, 2023..........................  April 30, 2023.................  No.
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V. 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).\34\ 
Pursuant to the APA, general notice and the opportunity for public 
comment are not required about 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.'' \35\
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    \34\ 5 U.S.C. 553
    \35\ 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 economic disruption caused 
by the COVID-19 pandemic is unprecedented. Even after nearly two years, 
the situation continues to evolve, thereby making it difficult to 
anticipate how pandemic-induced disruptions will manifest themselves 
within the financial system and how individual FICUs may be impacted. 
The continued relief measures, including the most recent infrastructure 
legislation, combined with the flight to safety and

[[Page 10949]]

reduced spending, places a strain on FICU net worth. To disrupt or end 
the regulatory relief in place would conflict with preserving the 
safety and soundness of the industry. Because the unprecedented 
expansionary monetary and fiscal policies, combined with precautionary 
savings, is 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 public's best interests 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.
    The Board values public input in its rulemakings and, to that end, 
believes that regulations are enhanced when the public has the 
opportunity to comment. Accordingly, the Board is soliciting comments 
on this interim final rule. The amendments made by the interim final 
rule will automatically expire on March 31, 2023 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 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.\36\ 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 to making 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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    \36\ 5 U.S.C. 553(d).
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B. Congressional Review Act.

    For purposes of the Congressional Review Act (CRA),\37\ the Office 
of Management and Budget (OMB) decides whether a final rule constitutes 
a ``major'' rule. If the OMB deems a rule to be ``major,'' the CRA 
generally provides that the rule may not take effect until at least 60 
days following its publication.
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    \37\ 5 U.S.C. 801-808.
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    The CRA defines a ``major rule'' as any rule that the Administrator 
of the OMB's Office of Information and Regulatory Affairs 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.\38\
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    \38\ 5 U.S.C. 804(2).
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    For the same reasons noted above, the Board is adopting the interim 
final rule without the delayed effective date generally prescribed 
under the CRA. The delayed effective date required by the CRA 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.\39\ 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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    \39\ 5 U.S.C. 808.
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    As required by the CRA, 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 (44 U.S.C. 3501 et seq.) 
requires OMB to 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 \40\ 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 thus determined that this rule does not constitute a 
policy that has federalism implications for purposes of the Executive 
order. But the Board notes that it has consulted with state regulators, 
as described in the PCA section of the Act, and will continue to do so 
during the comment period and implementation of this interim final 
rule.\41\
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    \40\ 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).
    \41\ 12 U.S.C. 1790d(I).
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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.\42\
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    \42\ 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 
\43\ 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.\44\ 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 considers FICUs with assets less than $100 million to be 
small entities.\45\
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    \43\ 5 U.S.C. 553(b).
    \44\ 5 U.S.C. 603, 604.
    \45\ NCUA Interpretive Ruling and Policy Statement (IRPS) 15-1. 
80 FR 57512 (Sept. 24, 2015).
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    As discussed previously, consistent with the APA,\46\ the Board has 
determined for good cause that general notice and opportunity for 
public comment is unnecessary, and thus, 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

[[Page 10950]]

relating to initial and final regulatory flexibility analysis do not 
apply.
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    \46\ 5 U.S.C. 553(b)(3)(B).
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    Nevertheless, the Board seeks comment on whether, and to what 
extent, 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, this 17th day of February 2022.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons set forth in the preamble, the Board is amending 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. Amend Sec.  702.106 by redesignating paragraphs (b)(1) and (2) as 
paragraphs (b)(1)(i) and (ii), respectively, and adding a new paragraph 
(b)(2) to read as follows:


Sec.  702.106   Prompt corrective action for adequately capitalized 
credit unions.

* * * * *
    (b) * * *
    (2) Notwithstanding paragraph (a) of this section, from February 
28, 2022, until March 31, 2023, for a credit union that is adequately 
capitalized:
    (i) The NCUA Board may issue an administrative order specifying 
temporary revisions to the earnings retention requirement, to the 
extent the NCUA Board determines that such lesser amount--
    (A) Is necessary to avoid a significant redemption of shares; and
    (B) Would further the purpose of this part.
    (ii) Despite the issuance of an administrative order under 
paragraph (b)(2) of the section, the Regional Director may require a 
credit union to submit an earnings retention waiver under paragraph 
(b)(1) if the credit union poses an undue risk the National Credit 
Union Share Insurance Fund or exhibits material safety and soundness 
concerns.
* * * * *

0
3. Amend Sec.  702.111 by adding paragraph (c)(4) to read as follows:


Sec.  702.111   Net worth restoration plans (NWRP).

* * * * *
    (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 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 may be accepted from February 28, 2022, until 
March 31, 2023.
* * * * *
[FR Doc. 2022-03845 Filed 2-25-22; 8:45 am]
BILLING CODE 7535-01-P