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WASHINGTON-The credit union and bank representatives at the Senate Banking Committee hearing on regulatory relief managed to maintain civility though some sniping at the end of the industry representatives’ testimony occurred. But the credit union representatives handily dismissed the usual `unfair advantage’ argument from the bankers during the March 1 hearing. While the substance of the hearing has been gone over again and again, the fact the Senate is moving on the bill is news. Lawmakers speaking at CUNA’s Governmental Affairs Conference seemed pretty confident in the bill’s chances this year. Senate Banking Committee Member Mike Crapo (R-Idaho), who has been charged with introducing the bill, told attendees of the hearing that he hoped for a markup “soon” and legislation “shortly before that.” He has yet to introduce legislation but instead has been floating around a matrix of potential provisions. NCUA Chairman JoAnn Johnson told the committee that reforming Prompt Corrective Action to include risk-based capital would greatly help NCUA be a more effective regulator. “PCA, and the focus it creates on active management of capital levels, has proven very valuable to NCUA’s management of the National Credit Union Share Insurance Fund (NCUSIF) and the overall health of the credit union system,” her written testimony said. “NCUA continues to strongly support a robust, statutorily mandated PCA system that fosters healthy capitalization levels and effective capital management in federally insured credit unions. “However, the current statutory requirements for credit unions are too inflexible and establish a structure based primarily on a `one-size-fits all’ approach, relying largely on a high leverage requirement of net worth to total assets. This creates inequities for credit unions with low-risk balance sheets, limits NCUA’s ability to have a risk-based requirement that governs more often, without requiring unduly high capital levels, and fosters accumulation of capital levels well in excess of what is needed for most credit unions’ safety and soundness and strategic needs.” Johnson pushed for adoption of NCUA’s language that has been included in the Credit Union Regulatory Improvements Act (H.R. 2317) for a risk-based capital system. She also recommended expanding credit unions’ member business lending powers. NASCUS also served on the panel with NCUA and the banking regulators. Chair Linda Jekel, Washington State director of credit unions, testified on behalf of NASCUS. Her testimony focused on capital reform as well. While NASCUS is supportive of the risk-based capital framework, the group is also seeking the right of federally insured credit unions to count secondary and alternative forms of capital toward Prompt Corrective Action requirements. “From a regulatory perspective, it makes sound economic sense for credit unions to access other forms of capital to improve their safety and soundness,” Jekel said. “We need to take prudent steps to strengthen the capital base of this nation’s credit union system.” In addition, NASCUS asked that one NCUA Board member be required to have state credit union regulatory experience and that privately insured state chartered credit unions be permitted to join the Federal Home Loan Bank system. Jekel closed by stressing the importance of state regulators’ autonomy and discussing federal preemption issues as they relate to the dual chartering system. The second panel of witnesses during the hearing came from the industry trade groups and consumer advocacy organizations. CUNA representative, Legacy Community Federal Credit Union President and CEO Joe McGee of Birmingham, Ala., backed NCUA’s plan to restructure PCA and asked for extended temporary PCA waivers for Hurricane Katrina affected credit unions. He asked for the “Senate’s help in continuing the not-for-profit, people-oriented, cooperative work we do.” McGee made a point of stating, “Credit unions are devoted to providing affordable services to all members, especially those of modest means,” a hot topic of late. He asked that Congress act on amending the definition of net worth in the Federal Credit Union Act to avoid unintended consequences of a merger accounting change by the Financial Accounting Standards Board immediately. The House has already passed the bill. The other big topic McGee touched upon was expanding credit unions’ business lending authorities by increasing the cap from 12.25% to 20% of assets and raising the currently $50,000 minimum threshold to qualify as a business loan to $100,000. “This would be especially helpful to smaller credit unions, as they would then be able to provide the smallest of these loans without the expense of setting up a formal program,” he pointed out, adding that there is a small business lending deficit in America. MAX Federal Credit Union CEO Greg McClellan of Montgomery, Ala. testified on behalf of NAFCU last week. He reiterated the credit unions’ overall approval of NCUA’s risk-based capital system. “This would result in a new, more appropriate measurement to determine the relative risk of a credit union’s assets and improve the safety and soundness of credit unions and the NCUSIF.” He also advocated expanding credit unions’ ability to offer business loans. McClellan’s written testimony also went through the laundry list of provisions included in the House bill (H.R. 3505) that NAFCU has been advocating for. NAFCU supports “certain limited investments in securities” because the current limitations “unduly restrict federal credit unions in today’s dynamic marketplace.” He also asked that NCUA be permitted to set the investment cap for credit union investments in CUSOs. Additionally, NAFCU said a provision that Senate Banking Committee Ranking Member Paul Sarbanes (D-Md.) has introduced in a separate bill allowing credit unions to provide wire transfers and check cashing services for anyone within their fields of membership would help save potential members money. McClellan also pointed to provisions from CURIA that should be included in a regulatory relief bill, including allowing credit unions to rent out office space in low-income areas and requiring a minimum of 20% of a credit union’s members to vote in an attempt to convert to a mutual savings bank. “We understand this legislation is a work in progress and we urge you to undertake careful examination of any other measures that fall within the scope of this legislation,” McClellan concluded. After one of the bank trade association representatives took a jab at credit unions during the brief Q&A, CUNA’s McGee observed for the members of Congress that the credit unions had no qualms with the relief the banks were seeking. [email protected]

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