WASHINGTON-Congress took several steps last week toward expanding the parameters of what is shaping up to be a broad financial services bill that will ensnare credit unions in many ways.
The House Financial Services Committee, which narrowly endorsed a bill creating the Consumer Financial Protection Agency the week before, was drafting a new bill to create a regulator to stem a so-called systemic crisis - like the one that occurred last year.
The draft calls for the creation of a Financial Services Oversight Council that would be headed by the Treasury Secretary. Also having votes would be the federal banking regulators, Securities and Exchange Commission, Commodity Futures Trading Commission, the Federal Housing Finance Agency and NCUA.
The council, which would also include a state insurance and state banking regulator as non-voting members, would be tasked with monitoring the financial markets and identifying "financial companies and financial activities that should be subject to heightened prudential standards in order to promote financial stability and mitigate systemic risk."
The new system would appoint the FDIC to act as a receiver for a systemically important firm that fails. The determination to take that step would be made by the Treasury Secretary, but only after a recommendation from the firm's regulator and the Fed. Among the factors the Treasury would have to consider: "the potential to increase moral hazard" putting the firm into receivership could have. The draft states that the FDIC must use the goal of financial stability, and not the preservation of the financial company, as the determining factor for what actions it takes.
Credit union lobbyists pointed out that few, if any credit unions, would be considered to pose a systemic risk, though U.S. Central FCU, the one-time $52 billion corporate which managed funds for the nation's 8,000 credit unions, could be considered to be one.
CUNA said it does not believe a credit union can pose a systemic risk to the financial system and it does not expect credit unions to be covered by or affected directly by the legislation. If even one of the largest credit unions were to fail, as costly as that might be to the credit union system, it would not threaten the overall financial system.
The bill was one of several circulating last week that would add to the financial services agenda. Another would set new standards for asset securitizations, requiring that originators, like mortgage lenders, have some "skin in the game," by retaining as much as 10% of the originations being securitized.
And the financial services panel was scheduled to hold a hearing late last week on another bill that could limit interchange fees on credit cards.
In addition, Sen. Christopher Dodd, chairman of the Senate Banking Committee, introduced a bill that would freeze credit card interest rates until next February when the main features of the new credit card law become effective.
The various bills are expected to be combined with the consumer protection bill, legislation to regulate derivatives, and potentially measures on overdraft protection, interchange fees and mortgage cramdowns.
