NCUA rules on risk weight for NCUA Guaranteed Notes
10/22/2010 04:02 pm
Last week the National Credit Union Administration (NCUA) voted to assign a zero-percent risk weight to the NCUA Guaranteed Notes (NGN) that securitize the cash flows on the legacy assets held by the conserved corporates. The board also approved a final version of RegFlex provisions.
The NGNs are being sold in a series of auctions on the open market. NCUA Chairman Debbie Matz said that the NCUA issued the low risk asset rule to help a greater number of credit unions participate in the NGN investment opportunity.
(l - r) NCUA Board Member Michael Fryzel, Chairman Debbie Matz, & Board Member Gigi Hyland (photo courtesy of CUNA)
The NCUA's new RegFlex provisions, which were also approved during the meeting, will require RegFlex credit unions to comply with the general limitation of a federal credit union's investment in fixed assets to no more than five percent of its shares and retained earnings. The provisions also subject RegFlex credit unions to stress test standards for some types of securities and saddle RegFlex credit unions with the same 100 percent net worth limitation on discretionary control of investments that applies to federal credit unions.
Member business lending by credit unions will also be affected, with RegFlex participants soon being required to comply with collateral and security provisions that include obtaining the personal liability and guarantee of the borrower. The NCUA noted that additional changes to its MBL rules will be needed, and hinted that those changes could be made soon. The NCUA said that it would also take a broader look at the MBL rule in the near future.
Matz said that the NCUA elected to move ahead, citing the need for a "proactive approach" and a wish to aggressively protect the National credit Union Share Insurance Fund. Board member Michael Fryzel also backed the final rule, saying that the original RegFlex rules "may have been too flexible." However, board member Gigi Hyland opposed the changes, calling them a "substantial dilution" of the original RegFlex provisions.
The RegFlex changes are substantially similar to the NCUA's original RegFlex proposal, which was released earlier this year.
Click here for a complete summary of last week's NCUA board meeting.