At its sixth meeting of 2020, the NCUA Board covered important issues affecting credit unions. Among key decisions was unanimous approval of a proposed rule that would phase-in the day-one adverse effects on regulatory capital that may result from fully implementing the current expected credit losses (CECL) accounting methodology.
The CECL change has caused concerns, especially for smaller credit unions, that it would increase the compliance burden without offering any real benefits. Under the proposed rule, the NCUA Board would phase-in the day-one effects on a federally insured credit union’s net worth ratio over a three-year period, under the NCUA’s prompt corrective action regulations. The proposed rule would temporarily mitigate the adverse consequences of the day-one capital adjustments, while requiring that credit unions account for CECL for other purposes, such as on their Call Reports.
The phase-in would only be applied to those federally insured credit unions that adopt the CECL for the fiscal years beginning on or after Dec. 15, 2022, which is the deadline established by the Federal Accounting Standards Board for CECL’s implementation. Credit unions that decide to adopt CECL for the fiscal years beginning before that date would not be eligible for the phase-in.
Under the proposal, federally insured credit unions with less than $10 million in assets would no longer be required to determine their charges for loan losses under GAAP. Instead, these credit unions could use any reasonable reserve methodology if it adequately covers known and probable loan losses.
Also at the meeting, the NCUA Board unanimously approved a final rule changing the agency’s chartering and field-of-membership regulations for community charter approvals, expansions or conversions. The final rule will allow credit unions to reach out to underserved areas, helping more members afford life.
The rule re-adopts a provision to allow applicants to designate a combined statistical area, or an individual, contiguous portion, as a well-defined local community if the chosen area has a population of 2.5 million people or less, according to the agency.