NCUA Reregulates

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ALEXANDRIA, Va. — The NCUA Board, struggling with growing losses on credit unions, cut back significantly on its 8-year-old deregulatory program known as Regulatory Flexibility, or Reg Flex.

The board eliminated four of 10 Reg Flex exemptions for member business lending, fixed asset holdings, outside discretionary control of investments and stress testing of investments, acknowledging that these areas have been a focus of growing credit union losses.

NCUA Chairman Debbie Matz said the reregulatory move represents a proactive effort to get control of credit union losses. "I feel it is important to be aggressive, particularly in this environment, in protecting the share insurance fund," said Matz.

Under the new rules all credit unions, including the 3,100 qualified for Reg Flex, will be required to once again obtain a personal guarantee on all member business loans, must gain regulatory approval to exceed NCUA's limit of 5% fixed assets, will need NCUA approval to assign discretionary control of their investments, and must stress test all investments.

Separately, NCUA also approved an amendment to its Prompt Corrective Action rule that will assign a 0% risk weighting for the newly issued NCUA Guaranteed Notes, effectively allowing all federally insured credit unions to invest in the corporate legacy bonds being sold on Wall Street.

NCUA also officially entered the matchmaking business and introduced a merger registry that allows all credit unions to express their interest in acquiring troubled credit unions. The merger registry will be secret and will not be disclosed to the public. So far 89 credit unions have signed onto the registry since its launch a month ago.

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