Candon said that "while loan delinquency and net charge-offs have generally increased for state-charted credit unions, state regulators indicate that the levels remain manageable."

He also said state regulators are beefing up their efforts at consumer protection and consumer regulation and are working with state-chartered credit unions to ensure that they engage in safe underwriting practices.

Matz and Candon appeared with five other regulators at a hearing of the Senate Banking Committee's Subcommittee on Financial Institutions.

Matz said the problems of the corporate credit unions represent the biggest challenge and without the efforts that the agency took to shore them up, "the entire credit union system would have been in jeopardy."

In response to a question from Subcommittee Chairman Tim Johnson (D-S.D.), Matz said the proposed rules on corporate credit unions that agency plans to release next month will set limits on the types of securities they can invest in, restrict risk concentration and impose capital standards.

Lawmakers' questions focused on topics such as giving businesses more access to capital and whether to consolidate all the financial institution regulators into one agency.

Federal Reserve Governor Daniel Tarullo said there should be a "temporary targeted program," for business lending in this area that would include streamlining SBA lending and guaranteeing more loans.

Matz noted that business lending had increased at credit unions in recent years and said there was an increase of $5 billion in 2008 over 2007 and there has been an increase of almost $ 2 billion through June 30 of this year.

But in her written testimony she said that the NCUA is concerned with the increasing delinquency levels of business loans and noted that a review of 71 credit unions with "supervisory concerns," delinquent MBLs had increased from 0.17% to 8.34% in the past three and a half years, compared to an industrywide increase of 0.47% to 3.19%.

Conference of State Bank Supervisors Chairman Joseph Smith said the problems that banks face from some of their real estate loans are affecting their ability to make more loans.

"Commercial real estate issues are clogging up the balance sheets," said Smith, who is the North Carolina Commissioner of Banks.

Most of the regulators said they opposed consolidating bank regulators into one agency, and Matz and Candon praised the Obama administration's plan for keeping the NCUA a separate agency.

But Comptroller of the Currency John Dugan, whose office regulates national banks, said he "can't defend four separate banking regulators."

Sen. Charles Schumer (D-N.Y.) used his questioning to focus on the Consumer Financial Protection Agency in light of what he sees as the shortcomings of existing regulators in this area.

Tarullo, whose agency would lose some of its consumer protection authority under the proposal, said the Fed hasn't taken a position on the new agency, staked out a middle ground.

He said while "there are merits," to such an agency, "you'll lose something, the expertise of a safety and soundness regulator."

Tarullo added that the Fed had launched vigorous consumer protection initiatives, during the tenure of Federal Reserve Chairman Ben Bernanke.

Dugan said the new agency could create "a stronger regulatory regime," but enforcement could be a challenge

Neither Matz nor Candon was asked about the new agency.

In his written testimony Candon, the deputy commissioner of Vermont's Banking Department, urged lawmakers that when working on efforts to revamp regulations, especially for consumer protection, to "retain state supervision and uphold state authority."

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