Life Raft For Small CUs Is Floated
ALEXANDRIA, Va. — If the NCUA board’s proposed $30 million limit to define small credit unions stands, 1,603 credit unions would be excluded from risk-based net worth requirements and a provision of the interest rate risk rule, according to the NCUA’s action memo on the topic.
The increase was among three proposed rules and one request for information approved by the board during its Sept. 20 meeting.
The rule would greatly impact the NCUA’s Office of Small Credit Union Initiatives, increasing the number of credit unions it serves by 66%. The office’s director, Bill Myers, told the board he is reorganizing the office to allocate resources more efficiently to meet the increased demand. For example, small credit unions will be provided increased access to assistance online and will receive phone calls before the agency sends someone to assist the institution in person.
Credit unions between $10 million and $30 million in assets may not see regulatory relief come exam time, however.
Joy Lee Sr. FFIEC advisory to the chairman, said the newly designated small credit unions would not immediately begin receiving the shorter, 40-hour exams that credit unions with fewer than $10 million in assets now receive. Lee said the NCUA’s Office of Examination and Insurance will evaluate the success of the current short exam program in 2013 and then recommend whether to add additional credit unions to the program or perhaps create a different exam program for them.
John Kutchey, deputy executive director, added that credit unions under the final threshold wouldn’t see sudden changes to their exams, but changes would come gradually.
NCUA Chairman Debbie Matz said the proposed rule is a step forward for small credit unions struggling to survive.
“I talk about how credit unions have come through the recovery so well, but it’s a very different story for small credit unions,” she said.
When comparing industry assets to 1998, when a small credit union had fewer than $1 million in assets, a comparable range today would be between $30 million and $45 million, according to the board action memo.
The NCUA also said it will re-evaluate the rule that requires credit unions with more than $50 million in assets to adopt and implement an interest rate risk policy.
Another proposed rule would permit credit unions to invest in Treasury inflation protected securities, which increase or decrease in value according to inflation. The idea came from credit unions that suggested the investment to Matz during her listening sessions across the country earlier this year, she said.
Frank Kressman, associate general counsel, told the board that TIPS pose no risk to principal, saying the value would never fall below the original investment. He said TIPS aren’t a cure-all to interest rate risk management, but it is one additional tool credit unions can use to manage that risk.
In response to Matz’s question about any potential risks TIPS pose for credit unions, Rick Mayfield, the NCUA’s senior capital markets specialist, said credit unions need to understand how the security differs from others, especially when setting interest rate risk modeling assumptions.
The board also proposed increasing the definition of a rural district, expanding it beyond the current 200,000 person threshold to include the ability to exceed that number, provided the area contains less than 3% of the total state’s population. That proposed rule will have a 60-day comment period.
Finally, the board requested comment from credit unions regarding changes it could make to encourage greater participation in offering payday alternative loans, or PALS as the agency is now calling them. In particular, the board requests suggestions regarding changes that could be made to the allowed application fee and interest rate, so that the product is more attractive to credit unions without adversely affecting members, Matz said.