NASCUS, state and federal regs, league officials confer on international branching

SACRAMENTO, Calif. - Discussion of issues concerning field-of-membership and branching expansion by credit unions within the borders of the 50 states is almost an everyday occurrence. But what about international branching? This and related issues were the subject of discussion at a day-long, intensive meeting held March 21 at the Senator Hotel Office Building here between NASCUS and NCUA officials, regulators from about nine states including California and Washington, and presidents of the California and Washington credit union leagues. "The world is going global, and it's crucial that credit unions aren't left behind in that globalization," said NASCUS President/CEO Doug Duerr. The North American Free Trade Agreement (NAFTA) is changing the entire financial services landscape, he added. The March 21-meeting, which also featured the by-phone participation of the New York State regulator, is in fact the latest in a series of meetings on the subject of international branching that has been held between NASCUS and NCUA. Two years ago, an international branching summit was held between the association and the agency. In Dec. 2000 the topic was discussed at the executive committee meeting between NASCUS, NCUA Board members and regional directors. A second international branching summit was recently held in Orlando the week of March 12 at the annual NASCUS and NCUA Regulators Conference. The meetings not only reflect the increased interest among state-chartered credit unions to branch out internationally, but also the recognition of the safety and soundness risks involved with U.S. credit unions doing business in foreign countries. "Keeping in mind that no credit union, either on the state or federal side, has had experience with international branching, this is understandably a tall order," said Duerr. "The NCUA is mindful of this, they have legitimate questions and concerns. Their interest is in preserving the integrity of the insurance fund while giving state-chartered credit unions the flexibility to branch internationally." Indeed, citing its safety and soundness concerns over the prospect of state-chartered CUs branching outside the U.S., NCUA published an Advance Notice of Proposed Rule Making (ANPR) 12 CFR 741, "Requirements for Insurance and Foreign Branching" in Sept. 2000, asking for comments on whether NCUA should insure share activity that originates in international branches of state-chartered credit unions, and for suggestions on rules the NCUSIF should write if it agrees to cover CUs operating international branches. In its Nov. 13, 2000-comment letter to NCUA on ANPR 12 CFR 741, NASCUS urged "the NCUA to work with State Regulators to develop insurance requirements that mitigate risks associated with foreign branching while preserving a real ability for qualified credit unions to operate foreign branches." Noting in his letter that both the FDIC and the Federal Reserve already have found ways to facility international branching for U.S. banks, and for overseas banks to operate in the U.S., "it is evident that the NCUA in its role as the insurer should be able to do the same with a goal of mitigating risks but with a commitment to make workable and realistic rules which facilitate international branching when allowed by state legislatures and state regulators," Duerr wrote then. Among the questions and issues that came up at the joint regulators conference in Orlando between NASCUS and NCUA were: *how would the NCUSIF regulate the safety and soundness of international branches? *what approaches should be taken to mitigate the risk to institutions and the NCUSIF without completely foreclosing the option of foreign branching? *what would the costs of supervision of international branches be and who would pay for it? *what would be the special capital requirements for foreign branches? *do regulators have the ability to truly examine an institutions with foreign branches? *interest rate variation and currency fluctuation; *compliance with bonding requirements, and foreign laws and regulations; *how can the NCUSIF be integrated with foreign deposit insurance? *sovereignty issues; "There are no easy answers to any of these questions and issues, but there is a significant history of international branching in the banking environment for us to refer to," Duerr said. Even as state and federal regulators continue to hold lengthy discussions about state-chartered credit unions operating international branches, there are already four states that include international branching permissive language, albeit in a variety of forms, in their state credit union act - California, Washington, Florida, and Michigan. There are currently no state-chartered credit unions from any of the four states that have branches outside the U.S. or its territories. But there has been interest expressed already by several credit unions in Washington and California concerning opening branches in Canada and Mexico. Parker Cann, director of credit unions, Washington State said he's received inquiries from several state-chartered credit unions which expressed an interest in setting up branches in Vancouver, British Columbia. Being a border state, Cann said many credit unions in Washington, such as Weyerhauser Employees CU in Longview, have select employee groups in their field-of-membership which include employees in Vancouver. "We're still trying to get our hands around the issue of international branching," said Cann. "There's a slew of issues that have to be addressed before anything happens." Cann enumerated some of his own concerns that he's also shared with NASCUS on the association's online discussion forum on international branching. Cann for example, cites several structural issues such as: Does the law of the foreign country allow a U.S. credit union to branch into the foreign country or allow a U.S. credit union's CUSO that is not organized as a U.S. credit union, to open a credit union branch in the foreign country? If so, does the relevant U.S. law allow the CUSO to do so? John Annaloro, president/CEO of the Washington Credit Union League echoed some of Cann's concerns. "Each state regulator has to come to its own decision," said Annaloro. "I hope we can achieve permissibility for our credit unions to operate branches internationally." -ekingoff@cutimes.com