BIRMINGHAM, Ala.-Economic conditions and credit union balance sheets have changed dramatically since Dennis Dollar was chairman of NCUA. But Dollar doesn't believe conditions warrant NCUA's plan to broadly rein in the "Reg Flex" program he put in place while at the agency.
Indeed, Dollar believes the agency's proposal to curtail Reg-Flex will lead to new headaches for credit unions and NCUA itself. "Realizing that every [NCUA] board has the right to re-evaluate any piece of regulation, I hesitate to criticize the current NCUA board's actions," Dollar told CU Journal. "But I do disagree with them from time to time, and I have concerns about retreating from Reg Flex."
Reg Flex-the nickname for the Regulatory Flexibility rule that gives some leeway to CAMEL 1 and 2 credit unions-was originally authored by Dollar in 2002. Now, the current NCUA board is proposing to pull back from the changes that Reg-Flex initiated.
"I am convinced that the earnings generated during the Reg Flex era is what is sustaining credit unions during this difficult time," Dollar suggested. "If not for Reg Flex, incidental powers and FOM expansion in the early part of this decade, we would be facing twice, if not triple the number of CAMEL 4 and 5 credit unions."
Dollar said he understands that current market conditions are significantly different from the market conditions in 2002, when Reg Flex was adopted, and understands the current NCUA board believes it needs to reevaluate how Reg Flex is working. But he disagrees with the proposed changes.
"Reg Flex is self-enforcing in that when a credit union's CAMEL rating falls below the threshold, they are automatically no longer eligible for Reg Flex, and NCUA already has the right to revoke Reg Flex status from any credit union at any time for any reason," he noted. "What they are proposing is to eliminate four of the most valuable provisions in Reg Flex."
The four exemptions at stake: the agency's limits on fixed assets, personal guarantees on member business loans, requirements for regular stress tests on risky investments, and discretionary control of investments.
Rather than eliminate those exemption for all credit unions, Dollar would like to see NCUA consider changing the eligibility requirements instead.
"In 2002, Reg Flex was set up so that a credit union had to have 9% capital. I took a lot of criticism for setting the bar that high, but my whole point was to establish some cushion there so that in tough times, there would be no need to eliminate some of these exemptions," Dollar explained, noting that, ironically, it was only after Dollar was no longer on the board-but current Board Chairman Debbie Matz was-that the agency extended Reg Flex eligibility to credit unions with capital of 7%.
"I always felt that 9% was the better number," he said. "I would much rather see NCUA go back to that 9% than to start removing some of the provisions, particularly the most valuable provisions."
Moreover, Dollar, himself a former credit union CEO, said he'd rather see the agency use its right to take Reg Flex away on a case-by-case basis, rather than eliminating the most useful exemptions industry wide.
"The success of the Reg Flex policy speaks for itself," Dollar said. "I understand that this NCUA board has to deal with these times, and I understand the need to re-evaluate this program. But they have the right revoke Reg Flex for any credit union at any time for any reason. They examine these credit unions every year, they know who needs to be removed from the program."
