WASHINGTON – Lawmakers sparred Tuesday over a Republican plan to overhaul the Dodd-Frank Act and provide regulatory relief to well-capitalized credit unions.
The plan rests on a principle that credit unions with a net worth or leverage ratio of 10% should be exempt from liquidity and risk-based capital requirements and be eligible for an extended examination cycle.
Jim Nussle, president and chief executive of the Credit Union National Association and a former Iowa Congressman told the House Financial Services Committee, "while the top-line data show a healthy, strong and growing credit union sector, credit unions are hiring more compliance officer than loan officers," during his testimony before the panel.
He pointed to a recent study commissioned by CUNA and conducted by independent consultants that found that regulatory compliance cost credit unions $7.2 billion in 2014 alone, which was up from $4.4 billion in 2010.
"This is money that is not being used to put to use to benefit credit union members, but they're surely paying for it," said Nussle.
However, while Democratic lawmakers are amiable to providing regulatory relief to credit unions, some view the proposal as a backdoor plan to submarine Dodd-Frank reforms.
"Since the passage of Dodd-Frank, we have seen piecemeal attempts by our colleagues on the other side of the aisle aimed at undercutting Wall Street Reform," said Maxine Waters, D-Calif., the top Democrat on the committee.
"While credible financial reformers have proposed strengthening capital requirements in exchange for some regulatory relief" the proposal being put forth by the chairman of the committee Jeb Hensarling R-Texas., "is not that bill," Waters said.
However, Nussle pointed to the strong performance of credit unions during the financial crisis and said that additional relief would benefit their members without posing any additional risk to the financial system.
"Many credit unions operate with a leverage ratio in excess of 10%" Nussle said, adding that 3,975 of the 6,078 insured credit unions have net worth ratios greater than 10%.
"We believe many of these credit unions would take advantage of the regulatory relief provided…which would include relief from, among other things, NCUA's regulations on interest rate risk, liquidity requirements, and the recently finalized risk-based capital requirements," added Nussle.
He also cautioned against requiring a 10% leverage ratio for credit unions saying "It would take operational decisions out of the hands of credit unions and reduce their ability to serve credit union members." The plan that is being put forth by Hensarling would make the 10% leverage ratio an option that credit unions could opt into in exchange for an exemption from Dodd-Frank requirements.
But other lawmakers objected to using a simple leverage ratio, arguing that risk-based standards more accurately reflect the health of a financial institution.
"Some people complain that the problem with the risk weights before the crisis was that the risk-weights were inaccurate," said Rep. Carolyn Maloney D-N.Y. But, she added, "Under the chairman's bill, the solution is … even less accurate risk weights."
In his opening statement, Hensarling said while the propose legislation would reduce regulatory guard rails it would provide a net benefit to the economy.
"The Financial CHOICE Act will relieve financial institutions from growth strangling regulations that create more economic burden than benefit in exchange for voluntarily meeting higher, yet simpler, capital requirements," said Hensarling.
