WASHINGTON — Saying that her goal is to “target risky behaviors in credit unions, not credit unions themselves,” NCUA Chairman Debbie Matz on Sept. 19 announced that the agency will beef up certain safety and soundness regulations but ease up on others.
Later this fall, the agency plans to issue a proposed rule mandating loan originators to keep some risk on their balance sheets and require loan buyers to increase due diligence, she said during a speech to NAFCU's Congressional Caucus.
Matz also announced that next year the agency will issue a proposed rule limiting investment concentration for natural person credit unions that will be similar to rules enacted last year for corporate credit unions.
In an interview after Matz’s speech, Navy FCU President/CEO Cutler Dawson praised the idea of limiting investments because it can minimize certain risks, but he said he would like to see the details of the proposal.
Matz also said that in light of the comments on the agency's proposed rule to beef up regulations on CUSOs, the agency is likely to make changes that could exempt CUSOs that perform back-office operations that don't pose a potential risk to the credit union system.
In July, the agency sent out for comment a proposed rule that would require CUSOs to submit financial reports to the NCUA and there would be limits on the investments certain credit unions can make in CUSOs.
The agency also wants less than adequately capitalized state-chartered federally insured credit unions to get permission from their regulators before making investments in a CUSO. The proposed rule requires CUSOs to use GAAP accounting, prepare quarterly financial reports and get annual audits.
Matz also noted that the proposed rule mandating credit unions to devise interest rate risk management plans was needed to protect the credit union system’s safety and soundness.
In the area of regulatory relief, she reiterated her pledges that the NCUA will likely issue rules allowing credit unions to use derivatives as an interest rate hedge and allow credit unions to count subordinated debt toward risk-based net worth.
She also promised that the agency would expand some of the benefits that are currently only available to well-managed credit union under the Regulatory Flexibility program. The program allows CAMEL 1 and CAMEL 2 credit unions to be exempt from certain regulations, such as limiting charitable donations to nonprofit organizations promoting credit unions and requirements to stress test certain investments. The only privilege that the NCUA cannot extend without permission from Congress is the ability to purchase eligible obligations from other federally insured CUs without regard to member status or the need to complete a secondary-market pool.
CUNA President/CEO Bill Cheney said he is cautiously optimistic that the agency’s efforts will ease the regulatory burden facing credit unions. However, he fears that there may not be a net benefit for credit unions if the agency imposes additional burdens in other areas.
“We’d like to see relief but not have additional regulations. Credit unions are already the most heavily regulated of the financial institutions,” he said.
Matz reiterated her support for legislation raising the cap on member business loans and to raise supplemental capital.
She said the agency hopes to create a regulatory environment that will enable credit unions to expand their overall membership while still operating in a safe and sound manner. She reiterated a goal that she stated in 2009 that by the time her term expires in 2015, she’s like the credit union industry to serve 100 million members. There are currently 91 million credit union members.
Navy FCU’s Dawson, whose Vienna, Va.-based credit union has assets of $456 billion, said he sees expansion opportunities as a result of the problems facing Bank of America and Wachovia Bank.
“They are closing branches and cutting back on services. This is great opportunity for us,” he said.