§1790d Prompt corrective action

Summary

Requires the Board to act quickly to fix troubled insured credit unions while keeping losses to the insurance fund as small as possible. The Board must make rules for prompt corrective action like the bank rules, but fitted to credit unions as nonprofit cooperatives that do not have stock, build net worth from retained earnings, and usually have volunteer boards. New credit unions get a different set of rules that give them time to grow net worth and must aim to be adequately capitalized by the time they have been open more than 10 years or have more than $10,000,000 in assets. The Board sets net worth categories by percentages: well capitalized = at least 7% (and meet any risk-based rule), adequately capitalized = at least 6% (and meet any risk-based rule), undercapitalized = less than 6% or fail risk rules, significantly undercapitalized = less than 4% or less than 5% plus a failed or late restoration plan, and critically undercapitalized = less than 2% (or up to 3% if the Board sets it higher). The Board can add risk-based net worth rules for complex credit unions. An undercapitalized credit union must each year add at least 0.4% of its assets to net worth, unless the Board reduces that for specific reasons. Undercapitalized credit unions must file a realistic net worth restoration plan on the Board’s schedule; the Board must help small credit unions (under $10,000,000) if asked. While undercapitalized, a credit union generally may not grow average assets or add member business loans unless the Board accepts a plan and net worth improves as planned. The Board must appoint a conservator or liquidating agent within 90 days after a credit union becomes critically undercapitalized, unless the Board documents a better action; any alternative ends in 180 days unless renewed. If the credit union is still critically undercapitalized on average during the quarter that begins 18 months after it first became critical, the Board must appoint a liquidating agent unless the credit union has been following an approved plan, shows improving earnings, and the Board certifies it as viable. The Board mostly cannot delegate these decisions except for tiny credit unions under $5,000,000 if an appeal to the Board is allowed. If the insurance fund has a material loss involving a credit union, the Board’s Inspector General must review supervision, explain why the loss happened, and make prevention recommendations. A loss is “material” if it is more than $25,000,000 plus 10% of the credit union’s assets at the time the Board started assistance or was named liquidating agent. The Inspector General must also report every 6 months (ending March 31, 2010, and every 6 months after) on smaller losses and whether any need deeper review; those reports must be sent to Congress and others and made available under public records rules, but customer names need not be disclosed. The Comptroller General will review those reports and suggest improvements. Supervisory decisions by staff can be appealed to the Board. The Board must work with state regulators, get their views on plans, and give them a chance to act before appointing a conservator for a state-chartered credit union; if a state official timely objects in writing, the Board may not appoint a conservator unless the fund faces significant risk and appointment is necessary to reduce that risk. Credit unions that mainly serve other credit unions are excluded. The law does not stop the Board or states from taking other actions as allowed.