Buddy Gill, Senior Advisor to Chairman Matz, Discusses the “New NCUA” in Meeting with the Association

Northwest credit unions leveraged an opportunity to share information on the impact of the regulatory burden with the National Credit Union Administration (NCUA) April 12. The Northwest Credit Union Association (NWCUA) hosted a discussion in Portland between the credit union representatives and Buddy Gill, a senior advisor to Chair Debbie Matz for strategic communications and external relations since July 2011. Gill formerly ran the advocacy department at the Texas Credit Union League, and prior to that was a key strategist for passage of the Credit Union Membership Access Act of 1998 (H.R. 1151). At the NCUA Gill serves as an information conduit between agency and industry.

Gill highlighted the “New NCUA” vision and shared a number of positive industry trends. He pointed out that industry assets have doubled since 2001, recently rising over the trillion- dollar mark, and that the industry in the aggregate is well-capitalized, with over 10% net worth. Yet even with industry growth, the average age of a credit union member is 47, past the main borrowing years of 25-45. 

He also noted that as the economy slowly improves, the number of CAMEL 4 and 5 rated credit unions continues to decline, and the estimated loss range from the corporate crisis continues to shrink with the passage of time, with $1.6 to $3.9 billion dollars currently projected in remaining losses as of December 2012.

Gill also pointed out nearly one credit union a day has been lost over the past year, due mainly to voluntary mergers. Gill conceded that cumulative regulatory burdens may be playing a significant role in the decision of small credit unions to merge as they try to achieve economies of scale to be competitive.

“Regulatory burdens are costing small financial institutions money and time that could be better spent providing benefits to the member” said John Trull, director of regulatory advocacy for the Association. “The NCUA recognizes this, but other regulatory agencies impacting credit unions may not.”

A recent report by Continuity Control, a risk management firm, showed that community banks will spend nearly one million hours at a cost of $300 million dollars implementing new regulations in the fourth quarter alone. Some analysts believe this figure is comparable to what the similarly sized credit union industry will face. This further bolsters the argument for regulatory relief for smaller financial institutions.

As part of Chairman Matz’s Regulatory Modernization Initiative, NCUA has taken action to address this issue, increasing the definition of what constitutes a small credit union from $10 million in assets to $50 million in assets, and thereby bringing regulatory relief and assistance to nearly 70% of all credit unions. These credit unions are now exempted from the latest Interest Rate Risk regulation, and the NCUA will have to consider exempting them for any future regulations.

The “New NCUA” has followed President Barack Obama’s Executive Order, Gill said, modernizing outdated regulations and providing regulatory relief in certain areas not impacting the safety and soundness of a credit union. Recent examples include:

  • Making the reporting of Troubled debt restructurings less cumbersome
  • Allowing more flexibility for loan modifications
  • Expanding the definition of a rural charter
  • Allowing credit unions to invest in Treasury Inflation Protected Securities
  • Allowing video tellers
  • Changing the definition of what constitutes a fleet of vehicles for member business lending purposes
  • Guidance on how a credit union can get a blanket waiver to give lenders greater flexibility to make member business loans

Finally the NCUA streamlined the process for qualifying credit unions to accept a low income designation option, adding nearly 900 credit unions to the field. The LICU designation permits member business lending with no cap and allows credit unions to take supplemental capital, and accept deposits from non-members, among other benefits.

Gill pointed out that the additional member business lending authority to lift the overall cap that credit unions are seeking will require congressional action. Chairman Matz has testified in Congress before in support of filed legislation to raise the level of the cap to 27.5%.  Chairman Matz also recently met with the sponsor of the supplemental capital bill bill, Rep. Peter King (R-NY), and Gill noted he expects NCUA to issue a letter supporting that legislation sometime in the near future.

After highlighting some of what the new NCUA has done recently Gill talked about potential future actions. He was careful to point out that it is up to the NCUA Board to decide what to take on. Gill noted NCUA is now looking at modernizing the FCU bylaws, an area that a number of Northwest credit union executives have suggested unnecessarily limits their ability to make prudent business decisions, and the agency will seek credit union input. Gill went on to discuss a potential derivatives rule the Board may issue that could be limited to the most basic interest rate caps and swaps for the sole purpose of hedging interest rate risk, but noted that only a narrow slice of larger credit unions would likely qualify and have the necessary expertise to get such authority . There was speculation that a proposed rule could be announced before summer. The Association would like the cost of the derivatives program to be fair, mainly impacting the credit unions that are using the program from an operational cost perspective according to Trull.

The NCUA is also looking into proposing a risk-based capital system later in 2013, which would be in addition to the existing PCA system which is required by statute.  Gill also discussed how NCUA had little information on CUSOs and can’t provide basic information to Congressional questions on CUSO operations or scope, giving NCUA a regulatory “blind spot” and that the purpose of the 2011 proposed CUSO rule was to gather such information on CUSOs and annual audited financials, since NCUA does not have direct vendor authority as all other financial regulators do. The Association indicated that they would likely be opposed to such a rule or authority.

Examinations, always a hot topic, generated a lively discussion. Gill pointed out that Larry Fazio, the Director Examination and Insurance, has been on the job a relatively short period of time and has instituted a number of changes designed to improve exam consistency. In response the Association referred to the results of a national exam survey conducted by CUNA and the leagues showing that credit unions in other parts of the country have issues raised far less often than credit unions in Oregon and Washington by examiners –especially in the issuance of Documents of Resolution (DOR) in Oregon.

Rep.  Denny Heck, D-WA, recently raised this issue   during a congressional hearing. The Financial Services Committee was considering credit union regulatory burdens. Gill said that the NCUA is aware of our concerns and that Region V regulators will continue to look into this issue.

Other examination issues from NWCUA that came up included limiting the use of DOR to material issues only, improving examiner education, along with responsibilities during dual exams. It was suggested that clear policies and procedures outlining state and federal regulator responsibilities would be very helpful. Another suggestion was to move the regulations related to insurance to section 741 in order to eliminate the need to cross reference what constitutes a risk to the National Share Insurance Fund (NSIF) . Results from the exam survey showed that dual examinations were more likely to produce negative responses than exams conducted by a single regulator. Gill discussed how the appeals process works.  He noted that credit unions can call immediately the Office of the Inspector General in the unlikely event a credit union perceives serious unprofessional examiner conduct, and that the agency also elevated its Ombudsman to handle not just consumer complaints under appeal, but now also those of any credit unions still dissatisfied after following the standard NCUA exam appeal process. 

The meeting ended with Gill complimenting the Association on the tone of their letters and their general approach to advocacy.  Gill assured credit unions “we’re listening to you.” He added that Chair Matz remains open to credit union suggestions on how the NCUA can reduce regulatory burdens within the rules the agency  has direct control over, provided those changes do not compromise safety and soundness.

The NWCUA Regulatory Advocacy team works with state and federal regulators to help reduce the regulatory burden on credit unions and protect the credit union movement. The Association encourages members to participate in the regulatory process. If you have any questions about these or any regulatory issues, please contact Director of Regulatory Advocacy John Trull at jtrull@nwcua.org, or at 503.350.2209.

Posted in Advocacy News, NCUA.