Limits on Loans to Other Credit Unions

NATIONAL CREDIT UNION ADMINISTRATION <CFR>12 CFR Part 701</CFR> <RIN>RIN 3133-AF72</RIN> <SUBJECT>Limits on Loans to Other Credit Unions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> National Credit Union Administration (NCUA). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The NCUA Board (Board) seeks comment on a proposed rule to remove the regulations related to approval and policies on making loans to other credit unions. While this provision will no longer be codified in regulation, Federal Credit Unions would remain subject to statutory requirements related to making loans to credit unions. Federally insured state-chartered credit unions would remain subject to any other applicable NCUA or state law or regulation. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by February 27, 2026. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments may be submitted in one of the following ways. ( <E T="03">Please send comments by one method only</E> ): • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov</E> . The docket number for this proposed rule is NCUA-2025-1435. Follow the “Submit a comment” instructions. If you are reading this document on <E T="03">federalregister.gov,</E> you may use the green “SUBMIT A PUBLIC COMMENT” button beneath this rulemaking's title to submit a comment to the <E T="03">regulations.gov</E> docket. A plain language summary of the proposed rule is also available on the docket website. • <E T="03">Mail:</E> Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. • <E T="03">Hand Delivery/Courier:</E> Same as mailing address. Mailed and hand-delivered comments must be received by the close of the comment period. <E T="03">Public inspection:</E> Please follow the search instructions on <E T="03">https://www.regulations.gov</E> to view the public comments. Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments are public records; they are publicly displayed exactly as received and will not be deleted, modified, or redacted. Comments may be submitted anonymously. If you are unable to access public comments on the internet, you may contact the NCUA for alternative access by calling (703) 518-6540 or emailing <E T="03">OGCMail@ncua.gov</E> . <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Ariel Pereira, Senior Attorney, Office of General Counsel, at (703) 518-6540 or at 1775 Duke Street, Alexandria, VA 22314. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. Background</HD> On February 23, 2021, the Board published a final rule amending various parts of the NCUA's regulations to permit low-income designated credit unions, complex credit unions, and new credit unions to issue subordinated debt for purposes of regulatory capital treatment. <SU>1</SU> <FTREF/> Among other changes, the final rule established a new § 701.25, governing loans by Federal Credit Unions (FCUs) to other credit unions. The regulation establishes an aggregate limit on such loans of 25 percent of the lending FCU's paid-in and unimpaired capital and surplus. It also sets limits for loans to a single credit union borrower. The regulation sets forth specific eligibility requirements and aggregate limits for FCUs that invest in the Subordinated Debt of other credit unions. The requirements of § 701.25 are made applicable to federally insured state-chartered credit unions (FISCUs) through § 741.227. <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>  86 FR 11060 (Feb. 23, 2021). </FTNT> <FTNT> <SU>2</SU>  FCUs and FISCUs are collectively referred to as federally insured credit unions, or FICUs. </FTNT> In addition to the limits discussed above, § 701.25 imposes documentation requirements on FCU boards of directors, and through § 741.227 on FISCU boards as well. Specifically, paragraph (b) of § 701.25 requires the board of directors to approve all loans to other credit unions and to establish written policies for managing the associated credit risk. The policies must specify the limits on the aggregate principal amount of loans the FICU can make to all other credit unions and the aggregate principal amount of loans the FICU can make to any single credit union. Such limits specific to the FICU may not exceed the generally applicable limits established in § 701.25. <HD SOURCE="HD2">B. Legal Authority</HD> The Board is issuing this proposed rule pursuant to its authority under the Federal Credit Union Act (FCU Act). <SU>3</SU> <FTREF/> Under the FCU Act, the NCUA is the chartering and supervisory authority for FCUs and the federal supervisory authority for FICUs. The FCU Act grants the NCUA a broad mandate to issue regulations governing both FCUs and FICUs. Section 120 of the FCU Act is a general grant of regulatory authority and authorizes the Board to prescribe regulations for the administration of the FCU Act. <SU>4</SU> <FTREF/> Section 209 of the FCU Act is a plenary grant of regulatory authority to the NCUA to issue regulations necessary or appropriate to carry out its role as share insurer for all FICUs. <SU>5</SU> <FTREF/> The FCU Act also includes an express grant of authority for the Board to subject federally chartered central, or corporate, credit unions to such rules, regulations, and orders as the Board deems appropriate. <SU>6</SU> <FTREF/> <FTNT> <SU>3</SU>  12 U.S.C. 1751 <E T="03">et seq.</E> </FTNT> <FTNT> <SU>4</SU>  12 U.S.C. 1766(a). </FTNT> <FTNT> <SU>5</SU>  12 U.S.C. 1789. </FTNT> <FTNT> <SU>6</SU>  12 U.S.C. 1766(a). </FTNT> <HD SOURCE="HD1">II. Proposed Rule</HD> The Board proposes to remove § 701.25(b). Upon reconsideration, the Board believes that the regulation is unnecessary and overly prescriptive. The FCU Act already requires a FCU's board of directors to approve all loans to other credit unions. <SU>7</SU> <FTREF/> Accordingly, for FCUs, § 701.25(b) is largely redundant of an existing statutory requirement. Moreover, FICU boards are in the best position to determine whether formal approval policies are necessary for such loans, consistent with the number, size, and risks associated with the FICU's lending practices. Removing this regulation will provide FICUs with greater flexibility. The Board emphasizes that while the proposed rule would no longer require FICU boards to adopt written policies regarding aggregate limits on loans to other credit unions, FICUs remain subject to the limits and other requirements regarding such loans set forth in the other provisions of § 701.25. If the proposed rule is adopted, FISCUs would refer to state law to determine whether their boards must approve loans to other credit unions. <FTNT> <SU>7</SU>  12 U.S.C. 1757(5)(C). </FTNT> <HD SOURCE="HD1">III. Regulatory Procedures</HD> <HD SOURCE="HD2">A. Providing Accountability Through Transparency Act of 2023</HD> The Providing Accountability Through Transparency Act of 2023 (5 U.S.C. 553(b)(4)) requires that a notice of proposed rulemaking include the internet address of a summary of not more than 100 words in length of a proposed rule, in plain language, that shall be posted on the internet website under section 206(d) of the E-Government Act of 2002 (44 U.S.C. 3501 note) (commonly known as <E T="03">regulations.gov</E> ). The Act, under its terms, applies to notices of proposed rulemaking and does not expressly include other types of documents that the Board publishes voluntarily for public comment, such as notices and interim-final rules that request comment despite invoking “good cause” to forgo such notice and public procedure. The Board, however, has elected to address the Act's requirement in these types of documents in the interests of administrative consistency and transparency. The Board seeks comment on a proposed rule to remove the regulations related to approval and policies on making loans to other credit unions. While this provision will no longer be codified in regulation, Federal Credit Unions would remain subject to statutory requirements related to making loans to credit unions. Federally insured state-chartered credit unions would remain subject to any other applicable NCUA or state law or regulation. The proposal and the required summary can be found at <E T="03">https://www.regulations.gov</E> . <HD SOURCE="HD2">B. Executive Orders 12866, 13563, and 14192</HD> Pursuant to Executive Order 12866 (“Regulatory Planning and Review”), as amended by Executive Order 14215, a determination must be made whether a regulatory action is significant and therefore subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the Executive Order. <SU>8</SU> <FTREF/> Executive Order 13563 (“Improving Regulation and Regulatory Review”) supplements and reaffirms the principles, structures, and definitions governing contemporary regulatory review established in Executive Order 12866. <SU>9</SU> <FTREF/> This proposed rule was drafted and reviewed in accordance with Executive Order 12866 and Executive Order 13563. OMB has determined that this proposed rule is not a “significant regulatory action” as defined in section 3(f)(1) of Executive Order 12866. Further, this proposed rule to remove the regulations requiring that a FICU board of directors adopt minimum approval and written policy standards regarding loans to other credit unions is consistent with Executive Order 13563. <FTNT> <SU>8</SU>  58 FR 51735 (Oct. 4, 1993). </FTNT> <FTNT> <SU>9</SU>  76 FR 3821 (J ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 17k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━