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CUNA Regulatory Comment Call

August 4, 2005

EXECUTIVE SUMMARY

• The NCUA Board is soliciting public comments on proposed modifications of the minimum net worth and CAMEL criteria for eligibility for NCUA’s Regulatory Flexibility (RegFlex) Program. Currently, the RegFlex Program permits federal credit unions with 9% net worth and a CAMEL rating of 3 or better to be exempt from certain NCUA regulations.
• The proposal contains two key changes:
  • It would reduce the minimum net worth required for RegFlex eligibility to 7 percent to bring it into alignment with the level of net worth required for a well-capitalized credit union under the Credit Union Regulatory Improvements Act, HR 2317.
  • It would also require a RegFlex credit union to have a history of maintaining 7 percent net worth for six consecutive quarters prior to its entering the program. Currently, a credit union may be eligible if it maintains the required net worth level for only one quarter. During the Board meeting at which the proposal was approved for issuance, Chairman Johnson stated that extending the duration period is a “pretty fair trade-off” for lowering the capital requirement.
• The proposal would also eliminate the requirement that NCUA notify credit unions that automatically qualify for RegFlex.

• CUNA has been a strong supporter of lowering the net worth level required for RegFlex eligibility since the inception of the program, and the proposal supports our view.

• Comments are due to NCUA by September 27, 2005. Please send your comments to CUNA by September 13, 2005. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposal, or you may access it here.

BACKGROUND

• The RegFlex Program, adopted in 2002, presently exempts qualifying credit unions from a variety of regulatory restrictions, including the following:
  • The maximum limit on fixed assets.
  • The maximum limit on non-member deposits.
  • Conditions on making charitable contributions.
  • The maximum limit on investments over which discretionary control can be delegated.
  • The maximum limit on the maturity length of zero-coupon securities.
  • The mandate to “stress test” securities holdings to assess the impact of a 300-basis points shift in interest rates.
  • Restrictions on the purchase of eligible obligations.
  • The obligation that principals must personally guarantee assume liability for member business loans.
  • The maturity limit on investments purchased with the proceeds of a borrowing repurchase transaction.
  • The prohibition on purchasing a commercial mortgage related security unless it is permitted by the Federal Credit Union Act.
• Based on December 2004 Call Report data, 3,919 credit unions would qualify for RegFlex automatically under this proposal. This represents a 13.36 percent increase over the number of credit unions that automatically qualify under the existing RegFlex regulations. In addition, the proposed modifications would make an additional 462 credit unions that do not automatically qualify eligible to apply for a RegFlex designation.