CUs Testify, But CURIA Is Expected To Wait

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In what amounts to a dress rehearsal for next year, credit union representatives last week called on Congress to support more than a dozen regulatory relief provisions included in the CU Regulatory Improvements Act, known as CURIA.

But Rep. Spencer Bachus, the Republican chairman of the Financial Institutions Subcommittee of the Financial Services Committee, said during a hearing on the bill it is too late in the congressional session to pass the measure this year and the purpose of the hearing was to set the stage for next year.

A more comprehensive regulatory relief package that includes bank and S&L provisions is also likely to die at the end of this Congress, observers said.

During the hearing NCUA Chairman JoAnn Johnson asked lawmakers to act on at least one pressing concern, a pending accounting rule that will bar credit unions from aggregating capital after mergers, thereby acting as a disincentive for combinations. Johnson said it is important for Congress to act before the Jan. 1, 2006 effective date of the new accounting rule. Johnson also asked Congress to give NCUA legal authority over third-party vendors that play a growing role in the operations of credit unions.

Also testifying before the panel were representatives from NASCUS, CUNA and NAFCU. Testifying on behalf of CUNA, Sharon Custer, president/CEO of BMI FCU in Columbus, Ohio, argued in favor of eliminating or increasing the limits on member business lending (MBL) from the current 12.25% to the 20% suggested in the CU Regulatory Improvements Act (H.R. 3579).

'Systemic Incentive Against Risk'

She said there are no safety and soundness reasons to impose the current limits on member business loans, as the historical record is clear that such loans are not only safer than those in the banking industry, but also safer than other types of credit union loans. She further urged that NCUA be given the authority to increase the current $50,000 threshold, as proposed in CURIA.

"Credit unions' cooperative structure creates a systemic incentive against excessive risk taking, so they may actually require less capital to meet potential losses than do other depository institutions," the credit union executive said of the prompt corrective action system (PCA). "And because of their conservative management style, credit unions generally seek to be always classified as 'well' rather than 'adequately' capitalized."

Testifying on behalf of NASCUS, its chairman, Roger W. Little also called for regulatory relief, but his primary focus was on the need for capital reform.

"NASCUS has studied the risk-based capital reform proposal outlined in H.R. 3579 and supports a risk-weighted capital regime for credit unions," said Little, who is Deputy Commissioner of Credit Unions for the Michigan Office of Financial and Insurance Services. "H.R. 3579 changes the term, 'net worth ratio' in Section 216 of the Federal Credit Union Act from the ratio of credit union net worth to total assets to the ratio of net worth risk to risk assets of a credit union. In effect, this establishes a risk-based, net-worth ratio system for credit unions."

Bill Cheney, president of Xerox FCU in El Segundo, Calif., testified on behalf of NAFCU, and offered a similar call supporting reg relief.

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