‘Transparency’ key to upcoming CU-bank purchase reg: NCUA’s Hood

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WASHINGTON – National Credit Union Administration Chairman Rodney Hood on Tuesday offered further insights into an upcoming proposal from the agency surrounding CU-bank purchases.

“There seems to be this perception that credit unions are arbitrarily and capriciously buying banks, and that’s not the case,” Hood said in an interview with CU Journal following remarks at the 2019 NAFCU Congressional Caucus.

“The main thing that I want to do with the guidance is let the broader industry know that there is transparency – all of the boards at the banks and credit union have to approve the deal, so if anything it’s more of a refresh or an update,” he said.

Hood tweeted that CU-bank deals will need to be approved by NCUA in the same manner as the FDIC approves bank deals. But he added Tuesday that the agency will also be looking closely at issues of common bond.

“Those banks must still have the credit union field of membership in consideration, he said. “That means that if that field of membership is not a part of that credit union’s mission, then they can’t acquire that bank.”

The rule on bank purchases is expected sometime before year-end. While that may gain the most headlines, Hood also outlined a regulatory docket for NCUA’s four remaining board meetings of 2019 focused on improving access to capital and delivering a payday alternative loans product for credit unions.

As reported, this summer when the regulator delayed implementation of its controversial risk-based capital rule until 2022, Hood pledged to use the extra time to revamp credit union capital rules, including a proposal expanding the use of subordinated debt. Unlike banks, CUs’ only access to capital is through retained earnings, but Hood said Tuesday the board is looking to enhance that.

“Some of the methods that I’m considering is having other investors — whether it be other credit unions or other nonprofits — who want to provide subordinated debt to credit unions that can be counted toward their regulatory capital,” he said.

While his goals are lofty, Hood said his confidence is bolstered by the industry’s overall performance. Collectively credit unions’ net worth today is over 11.1%, or more than 400 basis points above the regulatory requirement, he said. Credit unions are now well-capitalized to a degree far better than what’s been seen for a long time, he added.

“I wouldn’t dare look upon this holistic approach if I thought that we were in sort of dangerous territory,” Hood reminded, noting his responsibility of ensuring safety and soundness in the credit union industry while protecting the Share Insurance Fund.

Hood also said credit unions can soon expect more rulemaking around payday alternative loans for consumers in need of small-dollar lending products. While many CU have their own PAL offerings, Hood said he envisions this product to be a guide to help individuals not only gain access to funds at a low rate, but as an opportunity to help credit unions provide financial counseling for those who need it. PALs, he added, could also be a gateway of sorts, allowing credit unions to eventually move members who use them into other products and services the credit union provides.

“This is one way of bringing folks into the economic playing field so they can share in the prosperity that others are enjoying,” he said.

Hood also said revamped exams and streamlined call reports are on the horizon.

One factor looming over nearly every facet of CU operations is the potential for a recession, which Hood alluded to in his remarks before the NAFCU audience. He told the crowd credit unions will have to keep an eye on liquidity risks along with earnings pressure derived from low interest rates and a flat yield curve.

In his interview with CU Journal, he said “Credit unions need to be mindful of taking undue risk,” and in particular cited issues surrounding concentration risk, which board member Todd Harper has also emphasized as a priority.

Harper is scheduled to deliver his own remarks on Wednesday.

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Capital Regulatory guidance Regulatory actions and programs Payday lending Risk-based capital rule Risk-based capital NAFCU NCUA Washington DC