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The increased flexibility from the amended regulations will allow credit unions to better support the business needs of our membership while providing the credit union with distinct ability to compete with other financial institutions. Additionally, the proposed changes provided some parity for federal credit unions with federally insured, stated-chartered credit unions that are exempt from NCUA’s MBL rule if their state had developed MBL rules. The most significant change is related to participation lending. Participations purchased no longer count towards the total MBL aggregate limits. This will allow credit unions the ability to continue to service their own members in the business services environment while generating income from participations purchased. The participation vehicle allows credit unions to invest in loans that provide income for their credit union and as a tool to invest excess liquidity. During the last year many credit unions have grown rapidly as a result of the flight to safety syndrome and their members do not have the loan appetite to offset the rapid share growth. This change does not eliminate the PCA factor. The PCA regulations will continue to prevent and safeguard many credit unions from purchasing participation interests as it impacts their PCA ratios. The expansion also allows CUSOs to originate loans. Credit unions have long leveraged the cooperative environment when special expertise is required. This new ability will allow credit unions to offer business loans to their members while utilizing the expertise of experienced business lenders, thereby providing service with a safety and soundness emphasis. A noteworthy change and of value is the ability that credit unions now have to make loans to business members without personal guarantees as previously required. This has been an ongoing challenge when making business loans that are secured by assets such as real estate collateral. Securing real estate and requesting a personal guarantee has often placed credit unions at a competitive disadvantage. Credit unions are now on a level playing field with the banks in regard to this matter. The elimination of personal guarantees for reg flex or waiver granted credit unions will be for “good and reasonable” make sense loans. I hope and believe that credit unions will continue to request this guarantee whenever possible as a tool to mitigate risk. This change will allow credit unions to compete for small business loans which continue to be the backbone of our economy. Small businesses are often owned by credit union members. The recent amendments allow credit unions to fund construction loans with the member injecting a minimum of 25% into the construction project. The previous requirement was 35% capital infusion by the member. This allows the credit union to better compete for this type of business. The construction lending business does not come without risk and should continue to be monitored carefully by credit unions that offer this product. The regulations now also allow credit unions to lend up to 100% financing for business vehicle loans that are not considered fleet loans. This too allows credit unions greater flexibility when assessing the credit risk of the borrower. Finally, the NCUA regulations have expanded the current standard risk-based net worth (RBNW) component for business lending within the PCA rule. This expansion provides a bottom tier of capital risk weighting of 6% when MBL’s equal 15% or less of total assets; a middle tier is risk-weighted at 5% and consists of the amount of MBL’s greater than 15%, but less than or equal to 25% of total assets; and the top tier is risk-weighted at 14% and consists of the amount of MBL’s in excess of 25% of total assets. The changed risk-weighting is consistent with the agencies more global view of overall risk within a credit union. The more the appetite for risk, the greater a credit union needs in capital. Overall, the expanded authorities will require credit unions to place more prominence on internal procedures and policies, monitoring, credit risk and overall diversification. Employees, more than ever, will be required to be more experienced in addition to conducting greater due diligence when offering MBL’s. Credit unions will need to exercise greater prudence when choosing who they do business with and who they partner with. The expertise requirements will need to be more stringent in regard to underwriting, servicing and loan review. More importantly, the participation responsibilities are critical in safe guarding the credit unions’ future interest in an attempt to prevent or minimize loan losses. We need to prove, as an industry, that we are prudent and capable of performing diligently with our new authority so that we can continue to seek greater expansion for the future of the credit union industry and to continue to service our membership.

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