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ALEXANDRIA, Va.-Though CUNA and NAFCU generally supported NCUA’s proposed changes to the Regulatory Flexibility Program, both were left wanting more. CUNA and NAFCU each stated in their separate comment letters their strong support for the RegFlex approach to regulation and backed the reduction of the net worth ratio requirement from 9% to 7%. According to CUNA’s letter, 3,919 credit unions would automatically qualify under the proposed eligibility amendments, an increase of 13% by 2004 year-end call report data. An additional 462 would be able to apply also. NAFCU noted that lower net worth qualification may need to be revisited again if the Credit Union Regulatory Improvements Act (H.R. 2317), which would lower credit unions’ minimum net worth requirements, is signed into law. This is also noted in the preamble to the regulation. In exchange for this reduction, NCUA has proposed requiring qualifying credit unions to have maintained that net worth for the previous six consecutive quarters. While NAFCU was accepting of this trade-off, CUNA Associate General Counsel Mary Dunn stated that it is unnecessary. “This requirement, which would replace the current requirement that the qualifying net worth level be met for a single quarter, seems to be inconsistent with RegFlex and the concept of regulatory leeway for well-operated credit unions,” she wrote. “Moreover, the regulatory latitude provided under RegFlex, even with the lower qualifying net worth levels, does not expose well-run credit unions or the credit union system to risk that is appreciably greater than risk associated with the current RegFlex program.” Dunn noted that credit unions that do not meet the six-month requirement could apply but this extra step is not necessary. CUNA and NAFCU also both backed a change to eliminate the requirement for NCUA to notify credit unions that automatically qualify for RegFlex. The agency also asked for other suggestions to update the RegFlex program. CUNA’s Dunn said the organization supported an appeal above the board level for denial of RegFlex status. Additionally, she wrote, certain exemptions should be provided under RegFlex for member business loans, such as the loan-to-value requirements and “other waivable requirements;” credit unions should have a process for submitting RegFlex suggestions; and CUNA found the format changes favorable to compliance. NAFCU recommended that the agency waive the three-year occupancy under the fixed-assets reg for RegFlex-qualifying credit unions. “NAFCU believes the current requirement discourages long-term planning among credit unions,” President and CEO Fred Becker wrote. He also said that RegFlex credit unions should have greater authorities for investments and deposits due to technological advancements in risk measurement and hedging. “NAFCU believes that “well-capitalized” and well-managed federal credit unions should have an option to engage in investment activities that fit their investment objectives within a reasonable limit,” Becker wrote. Finally, he asked that NCUA “carve out an exception to the 25 percent residual value limit for those credit unions that can demonstrate the ability to effectively manage and absorb any increased risk associated with their leasing practices.” Not surprisingly, the banking trade groups opposed this new flexibility for credit unions. America’s Community Bankers argued, “We believe this is inconsistent with the basic tenets of safety and soundness ACB believes that any efforts to reduce or eliminate regulatory burden must not be to the detriment of safety and soundness of the regulated institution. We do not believe the NCUA’s proposed amendments to the RegFlex eligibility criteria meet this standard, particularly in light of the expanded powers and reduced regulatory requirements that RegFlex credit unions enjoy.” The trade association suggested that 10% as in the Federal Deposit Insurance Corporation Improvement Act “is a more appropriate standard for purposes of determining safety and soundness.” “Further, if the proposed amendments are adopted, ACB is concerned that the possible passage of CURIA would permit a credit union that is undercapitalized today to become a RegFlex credit union tomorrow,” its comment letter read. The Independent Community Bankers of America also opposes the lower capital standards. “In many cases, credit unions have exceeded their statutory mission and use their tax-exempt status to unfairly compete with taxpaying community banks,” President and CEO Camden R. Fine said. “This proposal by NCUA expands the powers of many credit unions and diverts them from their central mission of serving the credit needs of low-and-moderate income consumers.” In its comment letter to NCUA, ICBA stated, “When Congress passed the Credit Union Membership Act of 1998 (CUMAA), it mandated a 7% requirement as a minimum for a credit union to be well capitalized. NCUA should not be trying to circumvent the intention of Congress by taking regulatory action to reduce the capital requirements for 3,400 credit unions that participate in the RegFlex Program and that are not subject to the restrictions that other credit unions are subject to.Even though it is described by the NCUA as a regulatory relief program for well-capitalized credit unions, the real purpose of the program is to give well-capitalized credit unions additional powers so they can compete more effectively against banks.” [email protected]

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