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NCUA Final Rule on Alternatives to the Use of Credit Ratings

As noted in the Credit Union National Association's (CUNA) summary of the National Credit Union Administration (NCUA) Board meeting on December 6, the Board approved a final rule on alternatives to credit ratings to assess creditworthiness that will apply to federal natural person and corporate credit unions, effective 180 days after publication in the Federal Register; this rule change was required under the Dodd-Frank Act.  To evaluate the creditworthiness of a security, a credit union may consider, among the factors NCUA specified in the final rule, the use of internal or external credit risk assessments (such as those developed by a credit rating agency), to the extent appropriate.  However, credit unions should not rely exclusively on external credit risk assessments.  CUNA has received a number of questions on this rule, and will continue to urge NCUA to provide greater clarity on the factors regarding creditworthiness in their upcoming supervisory guidance before the effective date of the final rule.