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ALEXANDRIA, Va.- NCUA Chairman Dennis Dollar said NCUA has not gone as far as the law allows in the past with its FOM policy because of the political makeup of the board, but now, after court rulings consistently in favor of credit unions, four years of experience, and a Republican leaning board, time is ripe for FOM change – change that NCUA Chairman Dennis Dollar truly believes is key to credit unions’ continued growth. He says the FOM changes are crucial for diversification, enhanced viability of the federal charter, and reduction of regulatory burden. “This is a natural and necessary progression,” NCUA Chairman Dennis Dollar said of the process from Interpretive Ruling and Policy Statement (IRPS) 99-1 to 00-1 to the current FOM proposal. Dollar also pointed out that except for the TIP-trade, industry, profession-addition allowing single sponsor credit unions diversification options, nothing is really new. “Though I consider it (the FOM proposal) significant, I do not see that we are plowing a great deal of new ground,” he said. To aid credit unions in their diversification choices, NCUA is working to streamline many of the processes aimed at this goal, including permitting a wholly-owned ATM or shared branch with an ownership interest (removing the term “controlling”) to be considered a presence regarding the “reasonable proximity” requirements for adding a select employee group (SEG). As a regulator, NCUA views diversification as a mitigation of risk. Dollar emphasized that diversification was the very reason Congress decided to permit multiple group credit unions and the driving force behind H.R. 1151. The chairman said the proposed amendment is “within the bounds of not only congressional intent, but what the court has ruled.” He noted that U.S. District Court Judge for D.C. Colleen Kollar-Kotelly said in her decision that the regulator could have gone further, particularly in the area of technology. The TIP provision would permit single sponsor credit unions, like medical services institutions, to adopt employees of a particular profession, such as nurses, within a geographic limit, like Washington, D.C. Dollar stressed that this portion is instrumental to the long-term survival of single sponsor credit unions. For example, if a hospital was merged into another, a credit union could lose its entire FOM and be forced to close its doors for no other reason. If single sponsors are given an option to diversify, they may be able to remain open after such an occurrence. Dollar admitted that many single sponsors remain so either for philosophical reasons or sponsor requirement, and may not take advantage of the proposal as such, but at least the option would be there for those that are interested. And as credit unions continue to saturate the SEG market, more and more are looking to the community charter option. Currently, federal charters are converting to state charters in many areas, largely due to the more liberal state field of membership regulations. However, the proposed updates expand the definition of a `local’ community to be more in line with other federal regulators and allow metropolitan statistical areas (MSAs) up to one million and multiple MSAs up to 500,000 to be approved by the regional director. Additionally, credit unions picking up a city or county no longer have to demonstrate the area is a local community. While credit union opponents may take the extreme and say that a city like New York could then logically be deemed a `local’ community under the proposed rule, Dollar pointed out that the credit union would still have to demonstrate its ability and desire to serve the entire area under its business plan. He said that the changes enhanced the viability of the federal charter within the dual chartering system. Taking the current conversions to state charters to the extreme, Dollar said, NCUA would be left to regulate a handful of credit unions that are not interested in growing and eventually become merely an insurer with credit unions operating under banks’ rules. At that point, he predicted, the National Credit Union Share Insurance Fund would be rolled into the Federal Deposit Insurance Corporation, eliminating credit unions’ uniqueness altogether. But Dollar also said that he is not bashing the state regulators; he actually commends them for their “visionary” regulatory approach. “I just feel the federal rules should be enhanced as well,” he explained. Aside from the conversions to state charters, Dollar also expressed concern regarding the thrift conversions. “I don’t want to see any federal credit unions say they converted because they can’t have planned, managed growth,” the regulator said. Small credit unions in particular should benefit from the proposal, Dollar said. “No credit unions need viable growth options any more than small credit unions. Their growth may not be as large in dollars as other credit unions.” he remarked, but their growth percentages are important. He specifically said that both TIP and the ability to recruit SEGs with just an ATM or shared branch should greatly help small credit unions’ growth. Again, Dollar acknowledged that opponents will argue that a credit union can stick an ATM anywhere and add a SEG. However, he said, practical marketplace consideration would deter a credit union from doing anything like that, because it would have no staff to recruit members from the SEG. Additionally, Dollar said allowing ATMs to serve SEGs is a safety and soundness issue: more credit unions get into financial trouble trying to build a branch than installing an ATM. The chairman indicated the American Bankers Association’s (ABA’s) press release following the board’s issuance of the proposal for comment, calling their concern for the welfare of small credit unions “crocodile tears,” and stated, “Small credit unions will get much more out of this than anything the banks have ever done for them.” Dollar predicted a court battle would arise over the issue, but he said NCUA’s proposal stands on strong legal ground. “Even though it would not be unexpected for the ABA to initiate a legal challenge.I believe banks and credit unions would both be better served if the two groups worked together on issues of more importance to both groups such as regulatory relief, bankruptcy reform, and improvements in deposit insurance laws,” he commented. “[F]ield of membership will always be a point of contention because credit unions need the opportunity for planned and managed growth and the banks do not want to see credit unions as a competitive choice in the marketplace. Both sides need to get past those areas where the disagreements are insurmountable and work together where they can find common ground.” When asked about the regulation that prompted the legal battle all the way to the U.S. Supreme Court, decided in favor of the bankers, and the passage of H.R. 1151, Dollar commented, “The `82 regulation was well founded in policy, but not well documented on the legal side.” With the current proposal, which has been 18 months in the making, NCUA is on solid legal footing, he said. “The real complaint ABA has is with the law”. Dollar pointed out that criticism will not only be coming from the bankers, but also from the credit union community saying that more can be done. “If you’re not getting criticism, you’re not doing anything,” he said. He added that the criticism from both sides just shows that the proposal is balanced. [email protected]

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