80 FR 48010 - Capital Planning and Stress Testing-Schedule Shift

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 80, Issue 154 (August 11, 2015)

Page Range48010-48013
FR Document2015-19526

The NCUA Board (Board) is issuing amendments to the regulation governing credit union capital planning and stress testing. The amendments adjust the timing of certain events in the capital planning and stress testing cycles. The revisions to the regulation become effective January 1, 2016.

Federal Register, Volume 80 Issue 154 (Tuesday, August 11, 2015)
[Federal Register Volume 80, Number 154 (Tuesday, August 11, 2015)]
[Rules and Regulations]
[Pages 48010-48013]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-19526]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 702

RIN 3133-AE44


Capital Planning and Stress Testing--Schedule Shift

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is issuing amendments to the regulation 
governing credit union capital planning and stress testing. The 
amendments adjust the timing of certain events in the capital planning 
and stress testing cycles. The revisions to the regulation become 
effective January 1, 2016.

DATES: The final rule is effective January 1, 2016.

FOR FURTHER INFORMATION CONTACT: Marvin Shaw, Staff Attorney, Office of 
General Counsel, 1775 Duke Street, Alexandria, VA 22314 or telephone 
(703) 518-6553; or Jeremy Taylor or Dale Klein, Senior Capital Markets 
Specialists, Office of National Examinations and Supervision, at the 
above address or telephone (703) 518-6640.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Proposed Amendments
III. Regulatory Procedures

I. Background

    In April 2014, the Board issued a final rule requiring capital 
planning and stress testing for federally insured credit unions (FICUs) 
with assets of $10

[[Page 48011]]

billion or more.\1\ Capital planning requires covered credit unions to 
assess their financial condition and risks over the planning horizon 
under both expected and unfavorable conditions. Annual supervisory 
stress testing allows NCUA to obtain an independent test of these 
credit unions under stress scenarios. By setting a regulatory minimum 
capital ratio under stress, the April 2014 final rule requires covered 
credit unions to take corrective action before they become 
undercapitalized to an extent that may cause a risk of loss to the 
National Credit Union Share Insurance Fund (NCUSIF).
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    \1\ 12 CFR part 702, subpart E; 79 FR 24311 (Apr. 30, 2014). The 
rule refers to FICUs with assets of $10 billion or more as ``covered 
credit unions.''
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    The April 2014 final rule provided several timeframes for the 
formulation and submission of capital plans and for the stress testing 
of covered credit unions. One critical date in the stress testing 
process is the date NCUA releases the baseline, adverse, and severely 
adverse economic scenarios that serve as basis for the testing. NCUA 
plans to base the scenarios on those developed by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, and the Office of the Comptroller of the Currency 
(collectively, the banking agencies) for their regulated 
institutions.\2\ At the time the Board issued NCUA's April 2014 final 
rule, the banking agencies were scheduled to provide scenarios for 
their regulated institutions by November 15 each year.\3\ The banking 
agencies subsequently moved their scenario release dates three months 
later, to the following February 15.\4\ The Board believes it is 
important that scenarios used for credit union stress testing conform 
to those used by the banking agencies, both in substance and timing. 
The new schedule on which the banking agencies' scenarios are 
published, therefore, necessitates that NCUA modify its stress testing 
schedule.
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    \2\ 78 FR 65583, 65584 (Nov. 1, 2013).
    \3\ 12 CFR 46.5, 252.144, 252.154, and 325.204.
    \4\ 79 FR 64026 (Oct. 27, 2014); 79 FR 69365 (Nov. 21, 2014); 79 
FR 71630 (Dec. 3, 2014).
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    On January 26, 2015, the Board issued a proposal to adjust the 
timing of certain events in NCUA's capital planning and stress testing 
cycles.\5\ In the proposal, the Board amended the capital planning and 
stress testing rule to change NCUA's scenario release date from 
December 1 to February 28. In addition, the Board proposed to apply a 
more uniform fixed annual timeline for both capital planning and stress 
testing required under the rule. It also proposed to reword several 
provisions in the rule to clarify their meaning. The Board requested 
comment on all aspects of the proposal.
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    \5\ 80 FR 3918 (January 26, 2015).
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    NCUA received eight comments on the proposal to modify the capital 
planning and stress testing requirements, including comments from 
national trade associations, a state credit union league, federal 
credit unions, and federally insured, state-chartered credit unions. 
All commenters stated that they understood the need for the rule and 
that it is appropriate for NCUA to be consistent with the banking 
agencies' capital planning and stress testing requirements.
    Nevertheless, commenters objected to what they considered to be a 
``compressed'' capital planning schedule set out in the proposal. The 
commenters objected on various grounds, including that the capital 
planning process is complex and that a credit union would need input 
from senior management and the credit union's board of directors on 
stress testing and capital planning. Further, commenters stated that an 
as-of date of December 31, a date which triggers numerous other 
reporting requirements, would result in logistical and resource 
allocation problems. Commenters' primary objection was that they 
believed the schedule would be compressed if capital plans were due on 
April 30 (i.e., four months after the as-of date instead of five months 
after the as-of date).
    Seven commenters also noted that the proposed April 30 due date for 
capital plans is only two months after the scenario release date of 
February 28. These commenters contended that much capital planning 
activity could only begin after the scenario release date. However, 
capital planning is an activity distinct from stress testing and thus a 
credit union subject to part 702 can and should begin its capital 
planning activities well before the release of the stress test 
scenarios. A covered credit union's capital planning should be part of 
long-term strategic planning formulated on the basis of the credit 
union's business purposes and risk exposures.
    Nevertheless, the Board understands that covered credit unions may 
want to know what scenarios concern regulators before completing their 
annual capital planning process. Accordingly, after reviewing the 
comments, this final rule amends the capital planning and stress 
testing rule in part 702 to establish a due date of May 31 rather than 
April 30 for covered credit unions to submit their capital plans. This 
change will provide covered credit unions with five months from the as-
of date (and three months from the scenario release date) to prepare 
their capital plans, as commenters requested.
    The Board acknowledges that covered credit unions may encounter 
resource constraints prior to putting in place independent risk 
management and reporting functions. NCUA also expects that some credit 
unions currently under the $10 billion threshold will grow larger than 
$10 billion, and the Board does not want to impose undue regulatory 
burden on these newly covered credit unions.
    One commenter requested that the Board move the scenario release 
date to be earlier than February 28. However, this would not allow NCUA 
reasonable time to review the scenarios released by the banking 
agencies. The Board has therefore retained the February 28 release 
date.
    Several commenters requested that other milestone dates in capital 
planning and stress testing be modified to reflect the new May 31 
deadline for the capital plan submission. The Board agrees with these 
comments and has adjusted the revised annual capital planning and 
stress testing timelines in Table 1 to reflect the shift from April 30 
to May 31. Each other date in the timeline is adjusted accordingly.
    The following table summarizes the changes to the annual timelines 
provided in the capital and stress testing rule.

  Table 1--Revised Annual Capital Planning and Stress Testing Timelines
------------------------------------------------------------------------
        Action required             Current rule          Final rule
------------------------------------------------------------------------
As-of date for covered credit    September 30......  December 31.
 union's capital plan and NCUA
 stress test data.
NCUA releases stress test        December 1........  February 28.
 scenarios.
Covered credit union submits     February 28.......  May 31.
 capital plan to NCUA
 (incorporating credit union-
 run stress tests, if
 authorized).

[[Page 48012]]

 
NCUA provides NCUA-run stress    May 31............  August 31.
 test results to covered credit
 union.
NCUA accepts or rejects covered  Within 90 days of   August 31.
 credit union's capital plan.     plan's submission.
Covered credit union submits     Within 90 days of   November 30.
 stress test capital              receipt of test
 enhancement plan, if required.   results.
Covered credit union submits     Within 90 days of   November 30.
 revised capital plan, if         NCUA rejection.
 required.
Covered credit union requests    July 31...........  November 30.
 authority to conduct stress
 tests.
NCUA approves or declines        August 31.........  December 31.
 covered credit union's request
 to conduct stress tests.
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III. Regulatory Procedures

a. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
of any significant economic impact any regulation may have on a 
substantial number of small entities (primarily those under $50 million 
in assets). Because this final rule only applies to FICUs with $10 
billion or more in assets, it will not have any economic impact on 
small credit unions.

b. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or increases an existing burden.\6\ For purposes of the PRA, a 
paperwork burden may take the form of a reporting or recordkeeping 
requirement, both referred to as information collections. The changes 
to part 702 only alter the dates on which already required information 
is required and acted on, and do not impose any new information 
collection requirements. There is no new burden.
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    \6\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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c. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. 
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 rule does 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. NCUA has, 
therefore, determined that the rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

d. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Sec.  654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

List of Subjects in 12 CFR Part 702

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on July 23, 
2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the National Credit Union 
Administration amends 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.  702.502 by adding in alphabetical order the definition 
``Capital planning process'' and revising the definition ``Covered 
credit union'' to read as follows:


Sec.  702.502  Definitions.

* * * * *
    Capital planning process means development of a capital policy and 
formulation of a capital plan that conforms to this part.
    Covered credit union means a federally insured credit union whose 
assets are $10 billion or more. A credit union that crosses the asset 
threshold as of March 31 of a given calendar year is subject to the 
capital planning and stress testing requirements of this subpart in the 
following calendar year.
* * * * *

0
3. Amend Sec.  702.504 by revising paragraph (a) to read as follows:


Sec.  702.504  Capital planning.

    (a) Annual capital planning. (1) A covered credit union must 
develop and maintain a capital plan. It must submit this plan and its 
capital policy to NCUA by May 31 each year, or such later date as 
directed by NCUA. The plan must be based on the credit union's 
financial data as of December 31 of the preceding calendar year, or 
such other date as directed by NCUA. NCUA will assess whether the 
capital planning and analysis process is sufficiently robust in 
determining whether to accept a credit union's capital plan.
* * * * *

0
4. Amend Sec.  702.505 by revising paragraphs (a), (b)(5), and (d) to 
read as follows:


Sec.  702.505  NCUA action on capital plans.

    (a) Timing. NCUA will notify the covered credit union of the 
acceptance or rejection of its capital plan by August 31 of the year in 
which the credit union submitted its plan.
    (b) * * *
    (5) unacceptable weakness in the capital plan or policy, the 
capital planning analysis, or any critical system or process supporting 
capital analysis;
* * * * *
    (d) Resubmission of a capital plan. If NCUA rejects a credit 
union's capital plan, the credit union must update and resubmit an 
acceptable capital plan to NCUA by November 30 of the year in which the 
credit union submitted its plan. The resubmitted capital plan must, at 
a minimum, address: (1) NCUA-noted deficiencies in the credit union's 
original capital plan or policy; and (2) Remediation plans for 
unresolved supervisory issues contributing to the rejection of the 
credit union's original capital plan.
* * * * *

0
5. Amend Sec.  702.506 by:
0
a. Revising the first two sentences of paragraph (a);
0
b. Revising paragraph (c);
0
c. Removing paragraph (d);
0
d. Redesignating paragraphs (e) through (i) as (d) through (h), 
respectively; and
0
e. Revising newly redesignated paragraphs (d) through (g).
    The revisions read as follows:


Sec.  702.506  Annual supervisory stress testing.

    (a) General requirements. The supervisory stress tests consist of 
baseline, adverse, and severely adverse scenarios, which NCUA will 
provide by February 28 of each year. The tests will be based on the 
credit union's financial data as of December 31 of the preceding

[[Page 48013]]

calendar year, or such other date as directed by NCUA. * * *
* * * * *
    (c) Credit union-run tests under NCUA supervision. After NCUA has 
completed three consecutive supervisory stress tests of a covered 
credit union, the covered credit union may, with NCUA approval, conduct 
the tests described in this subpart. A covered credit union must submit 
its request to NCUA to conduct its own stress test by November 30 for 
the following annual cycle. NCUA will approve or decline the credit 
union's request by December 31 of the year in which the credit union 
submitted its request. NCUA reserves the right to conduct the tests 
described in this section on any covered credit union at any time. 
Where both NCUA and a covered credit union have conducted the tests, 
the results of NCUA's tests will determine whether the covered credit 
union has met the requirements of this subpart.
    (d) Potential impact on capital. In conducting stress tests under 
this subpart, NCUA or the covered credit union will estimate the 
following for each scenario during each quarter of the stress test 
horizon:
    (1) Losses, pre-provision net revenues, loan and lease loss 
provisions, and net income; and
    (2) The potential impact on the stress test capital ratio, 
incorporating the effects of any capital action over the 9-quarter 
stress test horizon and maintenance of an allowance for loan losses 
appropriate for credit exposures throughout the horizon. NCUA or the 
covered credit union will conduct the stress tests without assuming any 
risk mitigation actions on the part of the covered credit union, except 
those existing and identified as part of the covered credit union's 
balance sheet, or off-balance sheet positions, such as asset sales or 
derivatives positions, on the date of the stress test.
    (e) Information collection. Upon request, the covered credit union 
must provide NCUA with any relevant qualitative or quantitative 
information requested by NCUA pertinent to the stress tests under this 
subpart.
    (f) Stress test results. NCUA will provide each covered credit 
union with the results of the stress tests by August 31 of the year in 
which it conducted the tests. A credit union conducting its own stress 
tests must incorporate the test results in its capital plan.
    (g) Supervisory actions. If NCUA-run stress tests show that a 
covered credit union does not have the ability to maintain a stress 
test capital ratio of 5 percent or more under expected and stressed 
conditions in each quarter of the 9-quarter horizon, the credit union 
must provide NCUA, by November 30 of the calendar year in which NCUA 
conducted the tests, a stress test capital enhancement plan showing how 
it will meet that target. If credit union-run stress tests show that a 
covered credit union does not have the ability to maintain a stress 
test capital ratio of 5 percent or more under expected and stressed 
conditions in each quarter of the 9-quarter horizon, the credit union 
must incorporate a stress test capital enhancement plan into its 
capital plan. Any affected credit union operating without a stress test 
capital enhancement plan accepted by NCUA may be subject to supervisory 
actions.
* * * * *
[FR Doc. 2015-19526 Filed 8-10-15; 8:45 am]
BILLING CODE 7535-01-P


80_FR_48164
Current View
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionFinal rule.
DatesThe final rule is effective January 1, 2016.
ContactMarvin Shaw, Staff Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, VA 22314 or telephone (703) 518-6553; or Jeremy Taylor or Dale Klein, Senior Capital Markets Specialists, Office of National Examinations and Supervision, at the
FR Citation80 FR 48010 
RIN Number3133-AE44
CFR AssociatedCredit Unions and Reporting and Recordkeeping Requirements

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