ALEXANDRIA, Va.-Though CUNA and NAFCU generally supported NCUA'sproposed changes to the Regulatory Flexibility Program, both wereleft wanting more. CUNA and NAFCU each stated in their separatecomment letters their strong support for the RegFlex approach toregulation and backed the reduction of the net worth ratiorequirement from 9% to 7%. According to CUNA's letter, 3,919 creditunions would automatically qualify under the proposed eligibilityamendments, an increase of 13% by 2004 year-end call report data.An additional 462 would be able to apply also. NAFCU noted thatlower net worth qualification may need to be revisited again if theCredit Union Regulatory Improvements Act (H.R. 2317), which wouldlower credit unions' minimum net worth requirements, is signed intolaw. This is also noted in the preamble to the regulation. Inexchange for this reduction, NCUA has proposed requiring qualifyingcredit unions to have maintained that net worth for the previoussix consecutive quarters. While NAFCU was accepting of thistrade-off, CUNA Associate General Counsel Mary Dunn stated that itis unnecessary. “This requirement, which would replace the currentrequirement that the qualifying net worth level be met for a singlequarter, seems to be inconsistent with RegFlex and the concept ofregulatory leeway for well-operated credit unions,” she wrote.“Moreover, the regulatory latitude provided under RegFlex, evenwith the lower qualifying net worth levels, does not exposewell-run credit unions or the credit union system to risk that isappreciably greater than risk associated with the current RegFlexprogram.” Dunn noted that credit unions that do not meet thesix-month requirement could apply but this extra step is notnecessary. CUNA and NAFCU also both backed a change to eliminatethe requirement for NCUA to notify credit unions that automaticallyqualify for RegFlex. The agency also asked for other suggestions toupdate the RegFlex program. CUNA's Dunn said the organizationsupported an appeal above the board level for denial of RegFlexstatus. Additionally, she wrote, certain exemptions should beprovided under RegFlex for member business loans, such as theloan-to-value requirements and “other waivable requirements;”credit unions should have a process for submitting RegFlexsuggestions; and CUNA found the format changes favorable tocompliance. NAFCU recommended that the agency waive the three-yearoccupancy under the fixed-assets reg for RegFlex-qualifying creditunions. “NAFCU believes the current requirement discourageslong-term planning among credit unions,” President and CEO FredBecker wrote. He also said that RegFlex credit unions should havegreater authorities for investments and deposits due totechnological advancements in risk measurement and hedging. “NAFCUbelieves that “well-capitalized” and well-managed federal creditunions should have an option to engage in investment activitiesthat fit their investment objectives within a reasonable limit,”Becker wrote. Finally, he asked that NCUA “carve out an exceptionto the 25 percent residual value limit for those credit unions thatcan demonstrate the ability to effectively manage and absorb anyincreased risk associated with their leasing practices.” Notsurprisingly, the banking trade groups opposed this new flexibilityfor credit unions. America's Community Bankers argued, “We believethis is inconsistent with the basic tenets of safety and soundnessACB believes that any efforts to reduce or eliminate regulatoryburden must not be to the detriment of safety and soundness of theregulated institution. We do not believe the NCUA's proposedamendments to the RegFlex eligibility criteria meet this standard,particularly in light of the expanded powers and reduced regulatoryrequirements that RegFlex credit unions enjoy.” The tradeassociation suggested that 10% as in the Federal Deposit InsuranceCorporation Improvement Act “is a more appropriate standard forpurposes of determining safety and soundness.” “Further, if theproposed amendments are adopted, ACB is concerned that the possiblepassage of CURIA would permit a credit union that isundercapitalized today to become a RegFlex credit union tomorrow,”its comment letter read. The Independent Community Bankers ofAmerica also opposes the lower capital standards. “In many cases,credit unions have exceeded their statutory mission and use theirtax-exempt status to unfairly compete with taxpaying communitybanks,” President and CEO Camden R. Fine said. “This proposal byNCUA expands the powers of many credit unions and diverts them fromtheir central mission of serving the credit needs oflow-and-moderate income consumers.” In its comment letter to NCUA,ICBA stated, “When Congress passed the Credit Union Membership Actof 1998 (CUMAA), it mandated a 7% requirement as a minimum for acredit union to be well capitalized. NCUA should not be trying tocircumvent the intention of Congress by taking regulatory action toreduce the capital requirements for 3,400 credit unions thatparticipate in the RegFlex Program and that are not subject to therestrictions that other credit unions are subject to.Even though itis described by the NCUA as a regulatory relief program forwell-capitalized credit unions, the real purpose of the program isto give well-capitalized credit unions additional powers so theycan compete more effectively against banks.”[email protected]