Trades Criticize, ABA Praises Changes to Flexibility Rules
The NCUA proposal to more restrictions on member business loans, investing in fixed assets, and delegating control of investments for participants in regulatory flexibility programs overreaches and places credit unions at a competitive disadvantage, according to CUNA and NAFCU. By contrast, the ABA likes the proposed changes and wants even more restrictions.
CUNA and NAFCU took issue with the requirement that credit unions eligible for regulatory flexibility(RegFlex)-those that are well-capitalized and have CAMEL 1 and 2 ratings-be required obtain the liability and guarantee of the borrower's principals when making a member business loan.
NAFCU President/CEO Fred Becker wrote the agency that the requirement isn't needed because those credit unions already have strong underwriting procedures in place and said the agency is overreacting to the problems of a few CUs. He criticized the agency for using "figures from the entire credit union universe to justify a change that affects only a small number of credit unions that are, in the Board's own estimation, well-managed and well-capitalized."
CUNA's Dunn wrote that rather than changing the rules, "it would be far preferable for credit unions and NCUA to address MBL concerns on an individual credit union basis."
NASCUS Senior Vice President Brian Knight wrote that his group supports the change but wants the NCUA to clarify its standards for evaluating waiver requests because the current rules are "generally silent as to what measurables regional directors" use for granting waivers and to determine if they agree with the decisions of state regulators in these cases.
Dunn wrote that the agency's proposal to remove the exemption for RegFlex credit unions from the rule banning FCUs from investing more than 5% of their shared and retained earnings in fixed assets could "negatively impact credit unions' planned branching activities."
Becker wrote that the change could negatively affect credit unions not considering expansion because it might prevent them from spending money on items such as hardware and software upgrades to comply with the Truth in Lending Act and Regulation Z.
Dunn wrote that the agency "provides no supporting data" to corroborate its proposal to eliminate the exemption from the existing rule which limits the delegation of discretionary control to third parties over the purchase and sale of investments of up to 100% of net capital.
She also wrote that the proposed rule exempting RegFlex credit unions from the rule requiring credit unions to perform stress tests to determine the impact of a 3% increase or decrease in interest rates on their investments doesn't specify how those tests would address agency concerns about interest rate risk. She said CUNA would support some "reasonable, periodic stress testing requirements for RegFlex credit unions."
ABA Vice President and Senior Economist Keith Leggett wrote the NCUA that in addition to adapting the four changes to the rules for RegFlex credit unions, the agency should require a 9% net worth ratio for one quarter-rather than the current level of 7% for six consecutive quarters-to participate in the program. He also wrote that RegFlex credit unions would be overexposed to the risky commercial real estate market if they continue to be exempt from requirements that prohibit the purchase of commercial-mortgage related securities from a private entities and the total securities purchased doesn't exceed 50% of net worth.