Absence of Risk-Based Capital Is Disappointing

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Despite public comments to the contrary, there is no denying that the credit union lobby was mighty disappointed when Congress introduced a regulatory relief bill just before the August recess and the bill did not include a provision to enact a risk-based capital system for credit unions.

Even with more than a dozen other provisions for credit unions-such as allowing credit unions to retain their SEGs after converting to community charters, or providing service to non-members-the risk-based capital proposal has become the main focus of the credit union lobby. Developed by former NCUA Chairman Dennis Dollar, the proposal is seen as being the solution to what some see as potential shortfalls in credit union capital. As such, NCUA has lobbied Congress for risk-based capital, along with CUNA, NAFCU and NASCUS.

This consensus has succeeded in getting enough congressional support to have the measure included in the CU Regulatory Improvements Act-CURIA.

But there's also no denying that the drafting of the Reg Relief bill has a touch of the "personal" in it. I won't say "payback," because that's too easy, but it's clear that Jeb Hensarling, the Texas Republican who drafted the bill is very unhappy, one might even say angry, with NCUA over the agency's recent actions concerning his constituents at Community CU. Hensarling has been very critical of NCUA's rejection of the member vote at the $1.4-billion credit union and even drafted a letter signed by 21 of his Texas congressmen, both Republicans and Democrats, to NCUA expressing the lawmakers' dismay.

Hensarling's representatives would not return phone calls seeking comment on the bill. But Capitol Hill sources lobbying the Congressman note that the Texas lawmaker is very angry at NCUA's continued intransigence on the Texas credit union conversions, even after a meeting with NCUA Chairman JoAnn Johnson.

The credit union lobby, in its political correctness and not wanting to offend Hensarling or his Texas colleagues, insists that the failure to include risk-based capital in the bill was simply strategic in that the proposal does not have a broad consensus in the House Financial Services Committee, which will vote on the bill first. But the number of House members signing on as co-sponsors of CURIA-which features risk-based capital as one of its main provisions-continues to grow to more than 70, with many of the co-sponsors sitting on the committee. This indicates there may be general support for the measure.

One credit union lobbyist conceded the absence of risk-based capital from the Reg Relief bill increases the odds against the measure making a final bill. Making it even more difficult will be the banking lobby, which is carefully targeting for elimination as many credit union provisions as it can.

It's not clear yet how the Senate Banking Committee will treat the risk-based capital issue when it introduces its own version of Reg Relief this fall. It will make it increasingly difficult for the credit union lobby if the measure is not included in the Senate bill, either.

An old impediment to the Reg Relief bill has returned after it was believed resolved last year-the dispute over industrial loan companies, so-called "back-door banks."

Though last year's Reg Relief bill was held up over efforts to limit the growth of ILCs, the recent applications by Wal-Mart Stores, the nation's biggest retailer, and student loan giant Sallie Mae for ILC charters, is expected to rekindle the controversy. "This is going to be an issue, again," one banking lobbyist told The Credit Union Journal.

Lawmakers have been trying to keep the lid on ILCs, which have allowed a variety of both financial and non-financial companies to enter the banking business, allowing them to dispense loans and accept deposits with federal deposit insurance coverage. Utah, which has the most liberal ILC powers, has granted charters to automakers Ford, GM, Volvo and Volkswagon, as well as retailer Target, insurer USAA, office machine maker Pitney Bowes, and financial service companies Merrill Lynch, Goldman Sachs, UBS, American Express, Citicorp, and CIT. Both Wal-Mart and Sallie Mae have applied for an ILC in Utah.

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