NCUA Board Finalized Nonmember Shares Rule, Proposes FOM Rule Implementing Court Decision

The National Credit Union Administration Board finalized its rule expanding credit unions access to nonmember and public unit shares (deposits).

According to the final rule, a federal credit union may accept public unit and nonmember shares in an amount up to 50 percent of the credit union’s net amount of paid-in and unimpaired capital and surplus, less any public unit or nonmember shares, or $3 million, whichever is greater.

The original proposal had eliminated the current alternative limit of $3 million. The Board, however, thought the elimination of the current alternative limit of $3 million would adversely impact some small credit unions.

In addition, the Board is proposing changes to its community charter regulations to align it with the August 2019 opinion issued by the District of Columbia Circuit Court of Appeals.

A federal credit union would be allowed to designate a combined statistical area or an individual contiguous portion of such an area, as a well-defined local community, provided the chosen area has a population of 2.5 million or less.

The Board added a provision to address concerns raised by the Appeals Court about potential discrimination in the field-of-membership selection process in combined statistical areas and core-based statistical areas.

Read the press release.

Hot Money

Last week while addressing the 33rd Annual National Directors’ Conference, NCUA Board member Gigi Hyland expressed concern about interest rate sensitive money comprising a greater percent of credit union shares (deposits).

Between year-end 2000 and the first quarter of 2010, share certificates and money market shares went from 41 percent of total shares to 50 ¼ percent of shares. During the same time interval, regular shares slipped from 34 ¼ percent of total shares to 27.6 percent. (See slides 16 and 17 of her presentation).

NCUA views such interest rate sensitive funds, as money market shares and share certificates, as potentially non-core sources of funding. In other words, the prospect of earning a few more basis points could cause these funds to depart the credit union, creating a liquidity issue.

Adding to NCUA’s anxiety is that credit unions are increasing their concentration in long-term assets. Federally-insured credit unions’ net position in long-term assets has gone from 22.67 percent of assets at the end of 2000 to 31.84 percent as of March 2010.

The following table lists the 25 credit unions with at least $50 million in shares as of March 2010 that have the highest concentration of shares in share CDs and money market shares. Evangelical Christian CU has slightly more than 91 percent of its shares in either money market shares or share CDs. (Click on image to enlarge).

One institution on the list, St. Paul Croatian, was seized by NCUA during the second quarter.