NCUA Asks Senate for Flexibility
Larry Fazio, director of the Office of Examination and Insurance at the NCUA, asked a congressional committee Tuesday to give the agency more flexibility to write rules and regulations.
“NCUA would advise Congress to provide regulators with flexibility in writing rules to implement new laws. Such flexibility would allow the agency to effectively limit additional regulatory burdens on smaller institutions by appropriately scaling the regulatory requirements,” Fazio said, according to his prepared remarks at a Senate Banking, Housing and Urban Affairs committee hearing, titled, “Examining the State of Small Depository Institutions.”
“NCUA continues to modernize existing regulations with an eye toward balancing requirements appropriately with the risk small credit unions pose to the credit union system. By allowing NCUA discretion on scale and timing to implement new laws, we can more flexibly mitigate the cost and administrative burdens of these smaller institutions while balancing consumer and financial system risk priorities,” Fazio added.
Fazio told the committee the amount of credit unions overall has been declining consistently for more than 20 years despite membership growing by 66.3% between 1990 and 2013. The number of credit unions dropped 49.7% during that time period.
“One factor contributing to the decline in the number of credit unions is that many generally cannot take advantage of economies of scale given their small size,” he said. “Other factors include a single-sponsor credit union that loses its sponsor, lack of succession planning within the credit union before a long-term CEO retires, and technological changes.”
Fazio said employee fraud has played a role in the consolidation of credit unions, resulting in losses of $311.4 million to the National Credit Union Share Insurance Fund between 2010 and 2013 at liquidated credit unions.
Fazio said the NCUA has taken some steps to provide regulatory relief for smaller credit unions.
“In recognition of the operational and financial challenges faced by small credit unions, the NCUA Board in January 2013 reviewed the threshold used to identify which credit unions qualify as small entities under the Regulatory Flexibility Act. Under this law, NCUA must give special consideration of regulatory burden and alternatives of small credit unions every time the agency issues a new regulation,” Fazio said.
Based on system percentages carried forward from the last update in 2003 and corresponding risks to the NCUSIF, the NCUA Board determined that credit unions with less than $50 million in assets, up from the prior $10 million threshold, were small entities for purposes of the Regulatory Flexibility Act, he added.
Fazio said approximately 2,270 additional credit unions became eligible for regulatory relief. Small credit unions jumped to more than 4,670 or 68% of all credit unions.
He also cited the NCUA’s exemption for credit unions with less than $50 million in assets under the risk-based capital proposal as another effort to provide regulatory relief for credit unions.
Linda McFadden, president/CEO of the $154 million XCEL Federal Credit Union in Bloomfield, N.J., who testified on behalf of NAFCU, said RBC would hinder the growth of her credit union.
“The proposal, as it is written, would negatively impact XCEL FCU, taking us from a well-capitalized credit union to adequately capitalized,” McFadden said.
“This proposal will be putting restraints on the growth of credit unions and will restrict XCEL from implementing products and programs which are needed to compete in the financial industry,” she added.
The NCUA has indicated that many changes would be made to the proposal before it is finalized.
McFadden said if the agency implemented the rule as proposed, credit unions would have less capital to loan to creditworthy borrowers, for a mortgage, automobile or business.
CUNA Chairman Dennis Pierce, president/CEO of the $2 billion CommunityAmerica Credit Union in Lenexa, Kan., said the proposed RBC rule exceeds the NCUA’s authority.
“CUNA is a strong, historic supporter of risk-based capital for credit unions, but we strongly oppose this proposal because we believe it is a solution in search of a problem; it exceeds NCUA’s statutory authority; and it would adversely impact credit unions’ ability to serve their members without providing meaningful benefit to the protection of the National Credit Union Share Insurance Fund,” Pierce said in his prepared testimony.
“We strongly believe that if NCUA feels it needs to establish a higher risk-based capital standard for the purposes of determining whether a credit union is well-capitalized, compared to an adequately capitalized credit union, then it should seek such authority from Congress,” he added.