§ 702.204 - Prompt corrective action for moderately capitalized, marginally capitalized, or minimally capitalized new credit unions.

§ 702.204 Prompt corrective action for “critically undercapitalized” moderately capitalized, marginally capitalized, or minimally capitalized new credit unions.

(a) Mandatory supervisory actions by new credit union. A federally insured credit union which is “critically undercapitalized” Beginning on the date of classification as moderately capitalized, marginally capitalized or minimally capitalized (including by reclassification under § 702.202(d)), a new credit union must -

(1) Earnings retention. Increase the dollar amount of its net worth and transfer earnings to its regular reserve account in accordance with § 702.201by the amount reflected in its approved initial or revised business plan;

(2) Submit net worth restoration revised business plan. Submit a net worth restoration plan pursuant to revised business plan within the time provided by § 702.206 if the credit union either:

(i) Has not increased its net worth ratio consistent with its then-present approved business plan;

(

3) Restrict increase in assets. Not permit the credit union's total assets to increase except as provided in § 702.202

ii) Has no then-present approved business plan; or

(iii) Has failed to comply with paragraph (a)(3) of this section; and

(

4

3) Restrict member business loans. Not increase the total dollar amount of member business loans (defined as loans outstanding and unused commitments to lend) as

provided in § 702.202(a)(4)

of the preceding quarter-end unless it is granted an exception under 12 U.S.C. 1757a(b).

Action within 90 days

(b) Discretionary supervisory actions by NCUA. Subject to the applicable procedures for issuing, reviewing and enforcing directives set forth in subpart L of part 747 of this chapter for issuing, reviewing and enforcing directives, the NCUA Board may, by directive, take one or more of the following actions with respect to any “critically undercapitalized” credit union, or a director, officer or employee of such credit union, if it determines that those actions are necessary to carry out the purpose of this part:

(1) Requiring prior approval for acquisitions, branching, new lines of business. Prohibit a credit union from, directly or indirectly, acquiring any interest in any business entity or financial institution, establishing or acquiring any additional branch office, or engaging in any new line of business, except as provided by § 702.202(b)(1);

(2) Restricting transactions with and ownership of CUSO. Restrict the credit union's transactions with a CUSO, or require the credit union to divest or reduce its ownership interest in a CUSO;

(3) Restricting dividends paid. Restrict the dividend rates that the credit union pays on shares as provided in § 702.202(b)(3);

(4) Prohibiting or reducing asset growth. Prohibit any growth in the credit union's assets or in a category of assets, or require the credit union to reduce assets or a category of assets;

(5) Alter, reduce or terminate activity. Require the credit union or its CUSO(s) to alter, reduce, or terminate any activity which poses excessive risk to the credit union;

(6) Prohibiting nonmember deposits. Prohibit the credit union from accepting all or certain nonmember deposits;

(7) New election of directors. Order a new election of the credit union's board of directors;

(8) Dismissing director or senior executive officer. Require the credit union to dismiss from office any director or senior executive officer, provided however, that a dismissal under this clause shall not be construed to be a formal administrative action for removal under 12 U.S.C. 1786(g);

(9) Employing qualified senior executive officer. Require the credit union to employ qualified senior executive officers (who, if the NCUA Board so specifies, shall be subject to its approval);

(10) Restricting senior executive officers' compensation. Reduce or, with the prior written approval of the NCUA Board, limit compensation to any senior executive officer to that officer's average rate of compensation (excluding bonuses and profit sharing) during the four (4) calendar quarters preceding the effective date of classification of the credit union as “critically undercapitalized,” and prohibit payment of a bonus or profit share to such officer;

(11) Restrictions on payments on uninsured secondary capital. Beginning 60 days after the effective date of classification of a credit union as “critically undercapitalized,” prohibit payments of principal, dividends or interest on the credit union's uninsured secondary capital accounts established after August 7, 2000, except that unpaid dividends or interest shall continue to accrue under the terms of the account to the extent permitted by law;

(12) Requiring prior approval. Require a “critically undercapitalized” credit union to obtain the NCUA Board's prior written approval before doing any of the following:

(i) Entering into any material transaction not within the scope of an approved net worth restoration plan (or approved revised business plan under subpart C of this part);

(ii) Extending credit for transactions deemed highly leveraged by the NCUA Board or, if State-chartered, by the appropriate State official;

(iii) Amending the credit union's charter or bylaws, except to the extent necessary to comply with any law, regulation, or order;

(iv) Making any material change in accounting methods; and

(v) Paying dividends or interest on new share accounts at a rate exceeding the prevailing rates of interest on insured deposits in its relevant market area;

(13) Other action to carry out prompt corrective action. Restrict or require such other action by the credit union as the NCUA Board determines will carry out the purpose of this part better than any of the actions prescribed in paragraphs (b)(1) through (12) of this section; and

(14) Requiring merger. Require the credit union to merge with another financial institution if one or more grounds exist for placing the credit union into conservatorship pursuant to 12 U.S.C. 1786(h)(1)(F), or into liquidation pursuant to 12 U.S.C. 1787(a)(3)(A)(i).

(c) Mandatory conservatorship, liquidation or action in lieu thereof -

(1)

actions prescribed in § 702.109(b) if the credit union's net worth ratio has not increased consistent with its then-present business plan, or the credit union has failed to undertake any mandatory supervisory action prescribed in paragraph (a) of this section.

(c) Discretionary conservatorship or liquidation. Notwithstanding any other actions required or permitted to be taken under this section

(and regardless of a credit union's prospect of becoming “adequately capitalized”)

, the NCUA Board

must, within 90 calendar days after the effective date of classification of a credit union as “critically undercapitalized” - (i) Conservatorship. Place the credit union

may place a new credit union which is moderately capitalized, marginally capitalized or minimally capitalized (including by reclassification under § 702.202(d)) into conservatorship pursuant to 12 U.S.C. 1786(h)(1)(

G); or

(ii) Liquidation. Liquidate the credit union pursuant to 12 U.S.C. 1787(a)(3)(A)(ii); or

(iii) Other corrective action. Take other corrective action, in lieu of conservatorship or liquidation, to better achieve the purpose of this part, provided that the NCUA Board documents why such action in lieu of conservatorship or liquidation would do so, provided however, that other corrective action may consist, in whole or in part, of complying with the quarterly timetable of steps and meeting the quarterly net worth targets prescribed in an approved net worth restoration plan.

(2) Renewal of other corrective action. A determination by the NCUA Board to take other corrective action in lieu of conservatorship or liquidation under paragraph (c)(1)(iii) of this section shall expire after an effective period ending no later than 180 calendar days after the determination is made, and the credit union shall be immediately placed into conservatorship or liquidation under paragraphs (c)(1)(i) and (ii), unless the NCUA Board makes a new determination under paragraph (c)(1)(iii) of this section before the end of the effective period of the prior determination;

(3) Mandatory liquidation after 18 months -

(i) Generally. Notwithstanding paragraphs (c)(1) and (2) of this section, the NCUA Board must place a credit union into liquidation if it remains “critically undercapitalized” for a full calendar quarter, on a monthly average basis, following a period of 18 months from the effective date the credit union was first classified “critically undercapitalized.”

(ii) Exception. Notwithstanding paragraph (c)(3)(i) of this section, the NCUA Board may continue to take other corrective action in lieu of liquidation if it certifies that the credit union -

(A) Has been in substantial compliance with an approved net worth restoration plan requiring consistent improvement in net worth since the date the net worth restoration plan was approved;

(B) Has positive net income or has an upward trend in earnings that the NCUA Board projects as sustainable; and

(C) Is viable and not expected to fail.

(iii) Review of exception. The NCUA Board shall, at least quarterly, review the certification of an exception to liquidation under paragraph (c)(3)(ii) of this section and shall either -

(A) Recertify the credit union if it continues to satisfy the criteria of paragraph (c)(3)(ii) of this section; or

(B) Promptly place the credit union into liquidation,

F), or into liquidation pursuant to 12 U.S.C. 1787(a)(3)(A)(

ii

i),

if it fails to satisfy the criteria of paragraph (c)(3)(ii) of this section.

(4) Nondelegation. The NCUA Board may not delegate its authority under paragraph (c) of this section, unless the credit union has less than $5,000,000 in total assets. A credit union shall have a right of direct appeal to the NCUA Board of any decision made by delegated authority under this section within ten (10) calendar days of the date of that decision.

(d) Mandatory liquidation of insolvent federal credit union. In lieu of paragraph (c) of this section, a “critically undercapitalized” federal credit union that has a net worth ratio of less than zero percent (0%) may be placed into liquidation on grounds of insolvency pursuant to 12 U.S.C. 1787(a)(1)(A).

[65 FR 8584, Feb. 18, 2000, as amended at 67 FR 71092, Nov. 29, 2002; 75 FR 34620, June 18, 2010]

provided that the credit union has no reasonable prospect of becoming adequately capitalized.