FR 2021-02954

The document at hand is a notice from the National Credit Union Administration (NCUA) regarding their intention to submit an information collection request to the Office of Management and Budget (OMB) as part of their compliance with the Paperwork Reduction Act of 1995. This notice relates specifically to regulations about Liquidity and Contingency Funding Plans for federally insured credit unions.

Summary

In essence, this document outlines the NCUA's proactive approach to ensuring that credit unions of varying sizes detail their plans for managing their liquidity risks effectively. The regulatory rule, found in 12 CFR 741.12, is structured as a tiered system, imposing different requirements based on the asset size of the credit union. The public is invited to submit comments about this request until March 15, 2021.

Issues and Concerns

Some substantial issues arise from the document's content. Firstly, there is a lack of specific detail regarding what information is actually being collected. This omission can lead to confusion or misinterpretation about what credit unions need to prepare. Moreover, while the document states the total annual burden of compliance is 4,247 hours, it fails to break down this figure. Therefore, it is unclear what tasks or data reporting activities contribute to this workload, making it challenging to assess the directive's complexity or reasonableness.

The tiered system based on asset size might unintentionally favor larger credit unions that are more capable of meeting additional requirements, such as maintaining a contingency funding plan or establishing a federal liquidity contingency source. This potential imbalance is not directly addressed or justified in the document.

Additionally, for those not familiar with regulatory terminology, references such as Liquidity and Contingency Funding Plans or the Interagency Policy Statement on Funding and Liquidity Risk Management might be confusing. This complexity is compounded by the absence of an explanation on how these terms and policies impact day-to-day credit union operations.

Though the document mentions the rules aim to reduce the regulatory burden on smaller credit unions, it provides no further detail on what this reduction entails. The motives and effects on smaller institutions thus remain somewhat obscure.

Impact on the Public and Stakeholders

Broadly speaking, the action by the NCUA serves a crucial role in safeguarding the financial stability of the credit union sector through enforced preparedness for liquidity risks. For credit union members and the public, this could translate into greater trust in the resilience of these financial institutions.

For smaller or not-for-profit credit unions, as the predominant entities affected, this rule could either impose a challenging burden or encourage sound financial practices, depending on how the requirements are structured and communicated. Larger credit unions might face more stringent planning duties, but they might also be better equipped to meet these demands due to their size and resources.

Overall, while the underlying intent behind the NCUA's regulatory framework is understandable, the execution in terms of clarity and tangible impact requires further refinement and transparency. Disclosing more particulars about the data collection nature, burden specifics, and tiered system rationale would aid in dissolving concerns and ensure a balanced approach across different credit union profiles.

In the Federal Register document, there is a notable focus on the financial responsibilities and requirements for federally insured credit unions based on their asset size. The document outlines a tiered framework that dictates specific actions that these credit unions must undertake, depending on the total assets they manage.

Financial References and Requirements

• The notice specifies that federally insured credit unions with assets under $50 million must maintain a basic policy concerning liquidity risk management. For those with assets of $50 million and over, there is a requirement to maintain a contingency funding plan. Moreover, credit unions with assets exceeding $250 million are expected to both maintain a contingency funding plan and establish a federal liquidity contingency source. This scaling of requirements indicates a larger financial responsibility and preparation effort as a credit union's assets grow.

Relation to Identified Issues

• This tier-based asset requirement raises questions concerning whether the regulatory requirements might implicitly favor larger institutions. The document mandates more rigorous financial contingency measures as the asset size increases. Though larger institutions might be expected to better handle these detailed financial requirements due to greater resources, the document does not expressly justify this scaling or discuss its impact on smaller institutions explicitly, which emerges as one of the identified issues.

• An additional concern expressed in the issues is the lack of clarity surrounding the estimated total annual burden of 4,247 hours related to these financial and policy requirements. While this figure quantitatively signifies the effort required for compliance, it is not broken down or elaborated upon within the document, leaving the complexity or simplicity of the tasks associated with meeting these financial obligations unexplained.

In summary, the document uses asset-based thresholds to define financial planning responsibilities related to liquidity and contingency for credit unions. These financial references connect closely with several issues, particularly the potential impact on smaller credit unions and the clarity surrounding the effort needed for compliance.