WASHINGTON - Reiterating a message he's delivered in the past-that less regulation is in credit unions' best interest to compete effectively in the financial marketplace - NCUA Board member Dennis Dollar unveiled the details of his proposed regulatory flexibility- "Reg-Flex"- plan on the opening day of CUNA's Governmental Affairs Conference. Speaking to conference attendees, Dollar explained that "Reg-Flex is based on a belief that NCUA must get away from a `one size fits all' regulatory approach" and offered that Reg-Flex could "enable the innovation necessary to meet the marketplace demands for increased member service by removing many of the hurdles faced by those who would seek to innovate." Dollar's Reg-Flex proposal would apply to any credit union which had a CAMEL 1 or 2 rating for the past two NCUA examination periods and had a 9% net capital ratio or higher. This demonstrates that a credit union has demonstrated the ability to build capital and has accumulated at least a 200-basis point cushion over the minimum level to be classified as well capitalized under NCUA's prompt corrective action (PCA) regulation, Dollar said. Among the regulations Reg-Flex eligible credit unions would either be exempt from or have more flexibility from are: * removal of the 5% cap on fixed assets; * expanded investment authority on the types and limits of investments; * charitable donations; * increased appraisal threshold of $100,000 to one more consistent with the requirement by other financials ($250,000 is the proposed figure); * relaxed restrictions on public unit shares and non-member shares that low-income CUs are authorized to receive but which are limited by regulation. Other areas that could be included in Reg-Flex are higher loan-to-value ratios being allowed for member business lending; expanded group purchasing options; expanded authority on the purchase, sale and holding in the CU's portfolio of allowable eligible obligations; and a field-of-membership provision to encourage credit unions to expand into underserved areas by freezing the asset base used for figuring the credit union's operating fee for a two-year period. "These (Reg-Flex eligible) credit unions clearly represent a reduced safety and soundness risk, both to their own members and to the share insurance fund," said Dollar. "They have shown historical performance that clearly indicates safe and sound operations, demonstrates positive key performance ratios, and exhibits the ability to withstand potential future business fluctuations." If any time during an eligible credit union's examination and supervision program it was determined that the credit union no longer met the Reg-Flex eligibility requirements, the regional office at NCUA would be authorized to revoke the CU's Reg-Flex authority in whole or in part at any time. Passage of H.R. 1151 might have had the most dramatic effect on credit unions' right to compete in the marketplace, but passage of the Financial Modernization Act "will have the most significant long-term impact on how credit unions will have to compete in the marketplace and what the marketplace they have won the right to compete in will look like in the future," said Dollar. "Credit unions are not exempt from competing in the new marketplace," he continued. "Credit unions have no exclusion clause from marketplace realities. Credit unions are an integral part of the financial marketplace, not an appendage. They must realize that changes in the marketplace are going to affect them directly. And we as regulators must realize that as well and react to that changing environment in a way that encourages those we regulate to innovate and demonstrate their vision to not only as (William) Faulkner wrote `to endure, but to prevail'." According to Dollar's estimates, there will be approximately 3,800 federal credit unions that qualify for Reg-Flex. Of these, 56.8% are below $10 million in assets. This data proves that credit unions of all sizes and charter types are succeeding and prevailing in the competitive financial marketplace, he said. At press time, Dollar planned to present his "Reg-Flex" proposal in the form of an Advanced Notice of Proposed Rulemaking (ANPR) at the NCUA Board's March 16 meeting. The proposal extends an initial 60-day comment period for credit unions on the proposal before a proposed flexibility regulation is brought before the NCUA Board. Any proposed Reg-Fex regulation will then be sent out for an additional 90-day comment period before it's made final. Dollar expects this to be in late 2000, with a likely effective date of Jan. 2001. "I know from personal experience as a credit union manager that the single biggest deterrent to extending service to the underserved is often NCUA's own rules and regulations which can and sometimes do serve to stifle the very innovation and credit union desire to extend service that we at NCUA seek to see you provide," Dollar remarked. "That is why I feel Reg-Flex is such an important regulatory initiative. It can help shape NCUA's regulatory focus for this new marketplace." -
ekingoff@cutimes.com
