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CU reg relief issues get full hearing in House
Click for slide show (CLICK TO VIEW PHOTO ESSAY) “By law--not regulation, as for other insured depositories--credit unions must maintain a 7% net worth or leverage ratio in order to be considered ‘well capitalized,’” Dorety told the committee. “In comparison, the current leverage ratio for banks to be well capitalized is only 5%. This capital requirement for credit unions is inefficient in that it unnecessarily retards member service and growth, and it does not appropriately account for risk of a credit union’s assets.” The CUNA chairman said Congress should consider the removal of all of the prompt corrective action (PCA) stipulations from the statute and “leave it to regulatory determination, similar to the system under which the banking industry operates.” (Photo provided by CUNA)
WASHINGTON (3/7/08)—It could be argued that the star of Thursday’s congressional hearing on credit union regulatory relief was the important role credit unions are playing to help communities through the “subprime mortgage meltdown,” even though they were not part of the problem. That role was highlighted by a number of the members of the House Financial Services Committee—including Chairman Barney Frank (D-Mass.)—during that panel’s hearing entitled "The Need for Credit Union Regulatory Relief and Improvement." Frank, in his remarks opening the hearing, said he hoped his colleagues would follow their debate about the regulatory relief issues with some definite action for credit unions. He thanked Rep. Paul Kanjorski (D-Pa.), who heads the panel’s subcommittee on capital markets, for his role in spearheading credit union regulatory relief efforts. Kanjorski, along with Rep. Ed Royce (R-Calif.), is author of the Credit Union Regulatory Improvements Act (CURIA, H.R. 1537), which has 145 backers in the House, and the very recently introduced Credit Union Regulatory Relief Act (CURRA, H.R. 5519). Kanjorski chaired the remainder of the hearing at the chairman’s request. National Credit Union Administration (NCUA) Chairman JoAnn Johnson was the first of four credit union movement witnesses to testify. She keyed primarily into two major issues; reforming prompt corrective action (PCA) rules and allowing all credit union charter types to offer services to underserved areas. Johnson said the legislation being discussed by the committee would allow Congress to grant greater flexibility to credit unions serving consumers and to strengthen the NCUA’s ability to maximize the safe and sound operation of federally chartered credit unions. Honing in on PCA reform as her top priority as a regulator and a “necessary tool,” Johnson said a risk-based capital system, more aligned with that of the banking and thrift industries, would improve the current credit union “regulatory regime” and “put more money in the members’ hands.” CURIA proposes such a system. She added that it would: promote more active management of risk by credit unions in relation to capital levels; enable credit unions to better relate their capital to risk assessment; and strengthen NCUA oversight by adding tools to identify each credit union’s risk profile based on their activities. Tom Dorety, CEO of Suncoast Schools FCU, Tampa, Fla., testified on behalf of the Credit Union National Association (CUNA) as its new chairman. He told the House committee members he finds it truly ironic that as the economy experiences a credit crunch in many sectors and credit unions stand “ready, willing and able to help alleviate the problem and promote economic growth,” credit union efforts to do so are inhibited by “outmoded laws that protect the narrow self interest of bankers.” He urged Congress to support legislation that would improve a current 12.25%-of-assets cap on member business lending (MBL) by raising it to 20% of assets. “There is no economic rationale for this cap,” Dorety said, noting credit unions have been providing such loans safely for more than 100 years. Also, CUNA urged lawmakers to exempt from the cap MBLs made in underserved areas. The CUNA witness also backed the NCUA’s plan for a risk-based capital system and the statutory clarification that all federal credit unions may apply to NCUA to add underserved areas to their fields of membership. “We are forced to ask Congress for this provision because the American Bankers Association (ABA) sued NCUA in 2005 for authorizing single-sponsor and community-chartered credit unions to add underserved areas to their field of membership.” In a juxtaposition of banker actions that Rep. Brad Sherman (D-Calif.) said defined the term “chutzpah,” Dorety reminded the committee that in November 2005 the ABA complained before the House Ways and Means Committee that credit unions do not do enough to serve people of modest means. Then, within days, it took credit unions to court to prevent them from doing so. Also testifying as part of the credit union panel at the hearing were the National Association of State CU Supervisors, the National Association of Federal Credit Unions and two banking industry representatives. On a separate bankers’ panel, the ABA and Independent Community Bankers of America were represented. In a related story, earlier this week Sen. Mary Landrieu (D-La.) told the more than 4,500 attendees of CUNA’s Governmental Affairs Conference here that she soon will introduce a Senate version of the CURIA bill. Sen. Joe Lieberman (I-Conn.), also addressing the GAC, vowed to be an original co-sponsor of the measure.


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