NCUA Board approves proposals at first videoconferencing meeting; corporate reg back out for comment

<p>ALEXANDRIA, Va.-The NCUA Board quickly and unanimously approved the three proposals that came before them last week. Included among the agenda items were a community charter conversion, Oregon’s member business loan rule, and another version of the proposed rule regarding corporate credit unions. Several changes were made to the corporate credit union rule following its third official comment period. NCUA held an informal comment period prior to issuing its first advanced notice of proposed rulemaking (ANPR) in July of 1999. Another ANPR was issued in November 2000 and a proposed rule was approved by the board in September of 2001. Rather than issuing a final rule at this time however, the NCUA Board approved the issuing of yet another proposed rule for 60 days of public comment. NCUA Chairman Dennis Dollar, who said he felt the board had reached an appropriate balance, commented that he hoped the board could put out a final rule shortly after the comment period closes. Changes from the last proposed rule and this one include the elimination of the minimum RUDE ratio requirement of 2%, which several commenters had objected to, raising concerns that the requirement would conflict with one of the main purposes of corporate credit unions taking credit union deposits. In the end, NCUA agreed with commenters stating in the Board Action Memorandum (BAM), “The Board believes that a minimum RUDE (Reserves, Undivided Earnings) requirement may have the unintended consequence of limiting the traditional role of corporates as depositors of excess liquidity for natural person credit unions.” Last year saw major jumps in excess liquidity. According to NCUA’s Office of Corporate Credit Unions Director Kent Buckham, in 1998, corporate credit union capital sat at $66 billion and in October of 2000 dropped to $53 billion, but by the end of the first quarter of 2002 nearly doubled to $105 billion. In lieu of the minimum RUDE, corporates that fall below in their earning retention requirements would have to set aside money towards their reserves. According to Association of Corporate Credit Unions Executive Director Gigi Hyland, this is a much better measure of how a corporate is doing. Both CUNA and NAFCU still have one more item they would really like to see amended in the rule: investment concentration limits. The proposed rule allows for a general 50% concentration limit of capital, which many commenters found overly restrictive. The board however, appears to be firm about its position, as it stated in the BAM. While the board acknowledged corporates’ stepped up efforts in due diligence, “[I]f the corporate network is to maintain and enhance its ability to withstand financial crises, it must exercise caution in placing membership capital at risk.” Board Member Deborah Matz raised a particular concern of hers regarding corporate investment up to 50% in BBB flat securities, which she felt carry rather significant risk and should be limited to less than 50%. NAFCU staff said they hoped to ease her concerns. “We appreciate the effort going into the proposal stages and ANPRs,” NAFCU Tax Attorney Bill Hall said. NAFCU Economist Jeff Taylor applauded the board for eliminating the RUDE requirement and not devaluing the paid-in-capital, but advocated that the concentration limits were “straight jacketing corporates.” Hyland agreed but added that, “Overall, the network is going to be pretty satisfied with it.” In addition to the concentration limits CUNA plans on lobbying for broader investment authorities. Both groups plan on using the official comment period to make their views known to the board. In sum, the BAM read, “The revisions are intended to enable corporates to remain competitive in the marketplace while retaining NCUA’s historic focus on the safety and soundness of the corporate credit union system.” The agency also approved the sixth state member business lending rule for Oregon during last week’s meeting. The board determined, “While there are variations between the proposed rule and part 723 of the NCUA’s Rules and Regulations in terms of: definitions, collateral and security requirements, and constructions and development lending, we believe the rule minimizes risk and accomplishes the overall objectives of Part 723 of the NCUA’s Rules and Regulations.” Matz told attendees at the board meeting that when NCUA reviews its business lending rule this year (during the regular three-year rotation of reg reviews) that she has requested that the state business loan rules so far approved be taken into consideration and potentially used for revision of NCUA’s rule. Two issues that have repeatedly come up in state regulation requests, according to CUNA Senior Vice President and Associate General Counsel for Regulatory Compliance Kathy Thompson, have been the flexibility to require or not require personal guarantees for some loans and increasing the $50,000 uncollateralized loan limit to $100,000. It should be “a business judgment rather than a regulatory requirement,” she explained. Finally, the board unanimously approved a large community charter conversion for Firstel Federal Credit Union in Maple Grove, Minnesota to serve the more than one million residents of Hennepin County. Evidence of interaction was shown by pointing out the county’s, and actually, the nation’s largest shopping mall stands there, as well as the fact that 85% of Hennepin County residents also work in the county. As part of its services, the $213 million asset credit union will offer small $200 signature loans and already has numerous surcharge free ATMs and belongs to an ATM network. Regional Director Jane Walters, piped in via videoconference, noted that the credit union has “the ability and intent to serve the proposed area,” which includes two empowerment zones. All three board members agreed with this synopsis and emphasized the $165,000 increase in the marketing budget over two years. “I think the credit union went above and beyond the regulatory requirements in providing a supplemental marketing plan,” Board Member JoAnn Johnson said. While, NAFCU President and CEO Fred Becker was pleased with the approval of such a large group, he said the biggest news was Matz’ support of the proposal. She admitted she had been struggling with the definition of community when it came to large areas, but Matz said that she realized that community cannot be determined by population alone. Earlier this year, she abstained from voting on a large community charter conversion request. [email protected]</p>