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WASHINGTON-In follow up to the introduction of the Credit Union Regulatory Improvements Act (H.R. 2317), CUNA held a teleconference for credit unions featuring NCUA Chairman JoAnn Johnson and the Prompt Corrective Action provision that she has authored and championed. The more recent version of CURIA provides added details as to how a risk-based capital system would work for credit unions. “We know that the higher leverage requirements that are in the current system really create inequities for credit unions that have low-risk balance sheets and it also inhibits NCUA’s ability to incorporate behavioral incentives related to higher risk activities,” Johnson explained during the May 17 conference call. “The proposed system would indeed give comparability with the capital standards for other financial institutions that are federally insured.” “She has played a hand in every aspect of this. She knows it inside out. She has been involved.and done the work, and she’s done all of it,” CUNA President and CEO Dan Mica said. When the bankers attacked CURIA in the last Congress, they did get some traction with their argument that the PCA framework was not detailed enough, CUNA Senior Vice President of Governmental Affairs John McKechnie commented. In looking at capital standards, Congress always looks at the political element of safety and soundness as a residual from the S&L crisis, McKechnie, who was working on the Hill at the time for member of former House Banking Committee, commented. “Even though we were able to get almost 70 co-sponsors, even though the bill got a hearing, even though there was a lot of favorable attention focused on the bill, our best friends on this issue.took CUNA aside-and I think they approached the agency as well-and they said, the one part of this bill that we found that the banks actually got some traction on.was when they attacked the capital provision, which the banks attacked as inadequately drafted,” McKechnie explained. The lawmakers asked for something more explicit. With the new version of the PCA reform provision, the lobbyist has few worries. “The banker arguments, I think, are going to fall flat because this really does create a system that is very explicitly drawn,” he said. “It creates a system that is going to be comparable, not identical, but comparable to what the banks have and I think it is going to satisfy the political requirement of making sure Congress feels it adequately protects safety and soundness while at the same time enabling credit unions to better serve the consumers and really live up to some of the expectations Congress has for us, which is to serve people. If this becomes law, we are not any longer going to be laboring under a really unrealistic capital straightjacket and instead, we’re going to do a lot more things for our members.” That, of course, will not keep the bankers from trying to attack the provision. ABA President and CEO Edward Yingling commented after the introduction of the legislation, “The credit union lobby would like Congress to believe the bill makes credit union capital requirements equivalent to bank requirements. That is untrue. Current law was specifically designed to do that. This bill would provide for weaker capital requirements solely to satisfy those large credit unions that want to grow even faster. The expanded powers combined with weaker capital standards should raise significant safety and soundness issues among policymakers and prompt questions about the state of today’s credit union industry. “Today’s credit union industry isn’t what it used to be. It consists of small traditional credit unions that offer basic financial services to individuals, and an emerging category of credit unions that are larger, diversified and more focused on commercial lending and banking the affluent. This new breed of credit union has been identified in government studies, acknowledged by policymakers, and is recognized daily by community bankers who are struggling to compete with the tax-exempt conglomerates,” said Yingling. In conjunction with this legislative change, NCUA has announced it plans to consider adding the `S’ to CAMEL-for market Sensitivity or interest rate risk-and revamp or eliminate its examination matrix. The PCA provision is partly based on anticipated changes when BASEL II becomes final for the banks. CUNA Chief Economist Bill Hampel said he has heard concerns from credit unions over the complexity of BASEL, but tried to put the anxieties to rest. The Call Report credit unions use will likely be modified by NCUA taking into account the changes to the BASEL system so the numbers needed for compliance will come from there, he said. Hampel added that the BASEL discussion is still very much fluid, with smaller banking institutions looking for their own concessions in a potential BASEL Ia, and advised that credit unions keep a watchful eye on the debate. Though credit unions are not subject to BASEL, NCUA will be modeling the credit union system after it, he said. -

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