WASHINGTON–NCUA Chairman Rodney Hood said the agency’s general counsel has determined the NCUA board has the authority to phase-in the effects of FASB’s current expected credit losses accounting standard, or CECL, on credit union net worth ratios.
Hood also said a rule will be coming by year-end that will address credit union acquisitions of banks.
“(The CECL phase-in) will go a long way toward providing relief to credit unions that could see relatively large increases to their loan loss reserves when the new accounting standard becomes effective,” said Hood in remarks to NAFCU’s Congressional Caucus.
Hood said “operational burdens” related to CECL have led NCUA and other banking agencies that have been working with the Financial Accounting Standards Board to provide clarifications and training on practical methods for credit unions and community banks to calculate estimates under CECL.
“I want to thank FASB for listening to our concerns and issuing a second question and answer document that recognizes that ‘reasonable and supportable forecasts’ required by CECL can be scaled to the size and complexity of the institution and do not necessarily require modeling or economic forecasting,” said Hood.
Five months into his term as chairman of NCUA, Rodney Hood offered an overview here of where the agency is headed.
Speaking to NAFCU’s Congressional Caucus, Hood touched on three themes:
- What the agency is doing to ensure safety and soundness while providing flexibility to credit unions
- What credit unions need to be doing to respond to changes in the industry and to prepare for the future
- What NCUA and CUs should be doing together to extend promise of financial inclusion more widely
“What you’ll see in each of these areas is that my goal is to support and expand upon the credit union industry’s long commitment of people helping people,” Hood told the meeting. “That is the core value that serves as the foundation of everything we do, and it’s foremost on my mind with every decision I make at NCUA.
As he has in prior remarks, Hood said the agency is seeking to ensure its rules and supervisory programs achieve their intended results in the “least burdensome way possible.” He added the agency has been working steadily to take a closer look at rules that are outmoded, ineffective, or unduly burdensome.
“That means modifying, updating, or in some cases, eliminating regulations that may no longer fit today’s financial system,” said Hood.
Other points raised by Hood:
- Hood again noted that by year-end he plans to put before the board a proposed rule to allow subordinated debt to be counted as regulatory capital for a broader range of credit unions.
- Later this year, he said he NCUA will consider a rulemaking on this issue of banks acquiring small banks to “add even more transparency to the process.”
- Hood said ongoing efforts to modernize supervisory programs will be seen when its new system, MERIT, is unveiled, as it will “greatly improve the agency’s capabilities. It will incorporate streamlined processes, improved analytical capabilities, and other efficiency improvements.”
- Hood said a modernized and streamlined Call Report is in the works.
- As he has in the past, Hood urged care and caution around the strong economy leading credit unions to put themselves in a position of liquidity risk, saying the agency is keeping “an eye on this. We will pay particular attention to credit unions that heavily concentrate in particular asset classes. Credit unions with highly specialized business models need to have very strong capital and liquidity levels and best-in-class risk-management and monitoring approaches.”
- Hood also reiterated cybersecurity remains a top priority.
A Final Point on Inclusion
Hood’s final point was to call on credit unions to focus more energy on encouraging greater financial inclusion for under-served communities, which he has also made a priority.
“We all know that in many parts of our nation, it has gotten harder for people to get the financial services they need,” he said. “Certainly, in rural America, where so many financial institutions have shut their doors over the last decade, credit unions should be in the position to extend lending and other services that will provide these communities with the oxygen they need to survive. We need fresh thinking on how to address the needs of those communities.”