ALEXANDRIA, Va. (3/19/10)--Addressing the National Credit Union Administration’s (NCUA) proposed plans to tighten some of its current regulatory flexibility standards, NCUA Chairman Debbie Matz said that while the NCUA would like to give credit unions as much discretion as possible, safety and soundness must also be considered. The NCUA on Thursday approved a proposed rule that would rescind some exemptions related to fixed assets, member business lending (MBL), stress testing of securities, and the discretionary control of investments. While there is a statutory 5% limit on fixed asset investments for credit unions that are over $1 million in assets, the RegFlex provisions permit some slackening of that limit in certain circumstances. The NCUA, citing its own call report data, argued that “investing in higher levels of non-earning assets can materially affect a credit union’s earnings ability and, therefore, its viability.” The collected call report data “shows a higher percentage of earnings problems among credit unions with more than 5% of shares and retained earnings invested in fixed assets,” with the “percentage of earnings problems” increasing as “the level of fixed assets increases.” The NCUA has found similar losses in the MBL portfolios of some credit unions, with significant increases in delinquencies and charge-offs, and has proposed requiring that all credit unions obtain a loan principal’s guarantee “as part of their own underwriting standards and best practices.” The NCUA has also proposed that all credit unions, including RegFlex credit unions, stress test their securities “as a matter of safety and soundness and responsible business practices.” The NCUA currently allows RegFlex federal credit unions to “delegate discretionary control over the purchase and sale of its investments to certain persons outside the FCU” in excess of the 100% net worth cap that non-RegFlex federal credit unions must comply with. The proposed rule would rescind the 100% net worth exemption for RegFlex federal credit unions. However, NCUA examinations and insurance director Melinda Love said that if the proposal becomes a final rule, credit union total investments above the cap would be grandfathered into the rule. Other portions of RegFlex addressing charitable contributions, nonmember deposits, zero-coupon securities, borrowing repurchased transactions, commercial mortgage related securities, and the purchase of assets from federally insured credit unions are currently being reviewed by NCUA staff, Staff Attorney Frank Kressman said. The Credit Union National Association said that it recognizes the need for regulatory safety and soundness, but will examine the NCUA’s proposals to develop recommendations on how well-run credit unions can maintain the regulatory flexibility that they deserve while maintaining the tools that the NCUA needs to address safety and soundness and other issues facing the credit union system.