The NCUA's proposed cap and limit on credit union purchase of loan participations would hurt credit unions' abilities to lend and effectively minimize their ability to limit risk, according to a recent CUNA comment on the proposed regulation.
The Feb. 16 comment made the point that the agency did not appear to look to other financial regulatory agencies for examples of how they manage risks in loan participations.
“This approach of setting a regulatory limit on loan participations from one originator seems to be unique within the financial system, as we did not identify a similar restriction on bank loan participations,” the association asserted. “Since there does not seem to be a greater risk within the credit union system regarding loan participations than there is for banks, this proposed limitation would arbitrarily disadvantage credit union loan participation programs.”
CUNA's letter also quoted Keith Leggett, an economist with the American Bankers Association and frequent critic of credit unions and the NCUA. The letter noted that Leggett's Web log had taken up the systemic risk and loan participation question.
“While I recognize that some credit unions have gotten into trouble due to loan participations, I don't believe that at this time loan participations represent a systemic threat to the NCUSIF,” CUNA quoted Leggett as writing. “As these comments show, even the arch enemy of credit unions (when it comes to the tax exemption and new powers) does not accept NCUA's use of systemic risk to justify the proposal.”