NCUA Proposed Rule: Allow FCUs to Leverage Nonmember Funding

The National Credit Union Administration (NCUA) has proposed a rule that will allow a federal credit union (FCU) to leverage funding sources other than member shares. These rules apply to federally insured state credit unions (FISCUs) by reference in §741.204. Currently, §701.32(b) of NCUA’s rules limits a FCU’s total public unit and non-member shares to the greater of 20% of total share or $3 million. An NCUA Regional Director may approve a waiver request to exceed the limits.

NCUA is proposing to amend its rules to:

  1. Allow FCUs (and by reference in §741.204(a) FISCUs) to receive public unit and non-member shares up to 50% of the credit union’s paid-in and unimpaired capital and surplus less any public unit and non-member shares
  2. Eliminate the alternative $3 million limit
  3. Eliminate the waiver process for deposits in excess of the proposed limit
  4. Require an FCU (and FISCUs by reference) to develop and maintain a written plan if its public unit and non-member shares, taken together with borrowings, exceed 70% of paid-in and unimpaired capital and surplus

The NCUA Board, at its May 2019 meeting said the proposed rule would potentially allow an FCU to increase its funding from sources other than member shares, from 56 percent of assets to 65 percent of assets. Meaning, this proposal could potentially increase leverage for the entire credit union industry by 6 percent or $135 billion, based on current net worth levels.

NCUA’s proposed rule may be read here. Comments are due to NCUA by July 29, 2019.