WASHINGTON (9/20/11)--Chairman Debbie Matz of the National Credit Union Administration (NCUA) said Monday that as the agency moves to modernize its regulatory regime, it is any risks associated with evolving products, services, tools and relationships that should be targeted in rulemaking, not credit unions themselves. Matz said her preferred, targeted approach would affect only those behaviors most likely to cause losses, which would ultimately be borne by credit unions through their funding of the National Credit Union Share Insurance Fund. The Credit Union National Associatin (CUNA) noted that this approach could be positive for the agency and credit unions. CUNA has been urging the agency to adopt a more productive approach to rulemaking that focuses on problem areas rather than issuing rules with blanket applicability, regardless of the credit union’s level of risk. In announcing her “Regulatory Modernization Initiative, ” Matz said the plan will balance two key principles:
* Safety and soundness--strengthening regulations necessary to protect the 91 million credit union members and the NCUSIF; and * Regulatory relief--stripping away regulations that limit flexibility and growth, without jeopardizing safety and soundness.
“For rules which NCUA can control, we will ensure that they are in sync with the modern marketplace, clearly written, and targeted to areas of risk,” Matz said during an address to the National Association of Federal Credit Unions’ Congressional Caucus. “Regulatory modernization means effective regulation, not excessive regulation,” Matz concluded. The NCUA has said it is planning to modernize four main rules to strengthen safety and soundness by addressing marketplace practices and emerging risks. They are:
* A new loan participation protection rule covering both originators and buyers to require originators to retain some of the original loan risk on their balance sheets, and require buyers to do due diligence not just at origination, but on-going, just as they would for loans they originated in-house; * A new investment concentration exposure rule to limit concentrations in the riskiest investments, similar to the new investment standards for corporate credit unions; * A revised Credit Union Service Organization (CUSO) risk transparency rule, proposed in July, to provide a clearer picture of the off-balance sheet risks at CUSOs that sell high-risk services to credit unions (see resource link to read the Credit Union National Association’s comment letter); and * A targeted interest rate risk management rule to require credit unions over certain asset sizes and risk thresholds to have an appropriate policy to manage their risk.
CUNA is concerned, however, that some of these proposals, for example the CUSO and IRR proposal, are not sufficiently targeted to problem areas and will have a negative effect on credit union innovation. The association hopes to work with the agency to encourage senior agency officials to consider changes to those and other proposals that will address concerns without imposing regulatory overkill on the credit union system. The NCUA board has also prosed introduced proposals intended to reduce credit unions’ compliance burdens, such as:
* Allowing credit unions to use simple derivatives as an interest rate hedge; * Allowing credit unions to count subordinated debt toward risk-based net worth and to assign zero-risk weights to most U.S. Treasury securities; * Extending six of the seven remaining RegFlex provisions to all federal credit unions; and * Supporting legislative efforts to lift restrictions on member business lending and supplemental capital for credit unions.
Reducing credit unions’ regulatory burden is a key issue for CUNA and is among top topics to be broached as CUNA, the state leauges and credit unions launch their Hike the Hill events this month. Delegations from Alabama, Florida, Wisconsin, Ohio, Kentucky, Arizona, Colorado, Wyoming, Idaho, Illinois and Kansas are in town this week to visit their federal lawmakers on this issue, as well member business lending, alternative capital, and credit unions' tax status. Also speaking Monday, NCUA board member Gigi Hyland underscored how credit unions are a part of the current national conversation. She said credit unions are “multi-faceted and multi-relevant” to the current federal debate on how best to stimulate job creation and the economy. Credit unions, in my opinion, need to be part of the debate on how to create jobs and stir our nation’s economic recovery,” she said, adding that she hopes the U.S. Congress sees the jobs-creating opportunity—at no cost to the taxpayer—of raising the member business lending cap.