Credit Union Capital Issues Are Top Priority for the NCUA Chairman in 2005

LAKE BUENA VISTA, Fla.-NCUA Chairman JoAnn Johnson hopes to have a proposal out on credit union capital issues “sooner rather than later” covering three key areas to help ease the burden on credit unions. Producing “significant, meaningful improvements relating to capital for all credit unions,” was a highlight of Johnson’s recent speech at NAFCU’s CEO Conference. “While we will build on last year’s successes, we must keep a keen focus and not waver on producing results in modernizing regulations relating to capital standard for credit unions.” The chairman has said she looks forward to introducing a regulatory proposal to establish a risk-based capital system for corporate credit unions. In a later interview, she explained that while NCUA is not permitted to create a risk-based system for natural person credit unions, the law is silent on a risk-weighted system for corporates. Johnson also told the audience in her address that she supports a legislative remedy for a risk-based capital framework for natural person credit unions as well. In the meantime, Johnson plans to propose lowering the RegFlex qualifying net worth ratio from 9% to 7% and permit well-managed, low-income credit unions to have the option to release the portion of secondary capital accounts that no longer counts toward net worth. The anticipated proposals stemmed from testimony at NCUA’s Summit on Credit Union Capital. “All three of those are currently in the works,” she told Credit Union Times of the regulatory proposals. Johnson said she has not decided yet if all three will be combined or what form they may take. The banking industry has lobbied against the Credit Union Regulatory Improvements Act, which includes the legislative change to permit risk-based capital for credit unions. However, Johnson said she is not sure what to expect from the bankers on her impending proposals. “It is our area to deal with so I don’t know how much we’ll hear from them. This is credit union regulation, not banking regulation,” she stated. In addition to CURIA, Johnson has also kept Senate Banking Committee Member Mike Crapo (R-Idaho), who has been charged with introducing a financial services regulatory relief package in the Senate, apprised of credit unions’ capital issues in hopes they could be addressed in his bill too. Plowing into 2005, Johnson pointed out that “wise use of agency resources” is a paramount, general concern of hers. Through the Accountability in Management program, she told NAFCU’s conference attendees, the agency will “continue to evaluate our efficiencies.” She added that this is a constant review process and she is not sure of any structural changes at this time. NCUA held the fourth annual open budget briefing and public forum, providing greater sunshine on the ways of the NCUA budget. The agency ultimately adopted a 2005 Budget of $148 million, 1.29% below the 2004 budget. The board also voted to refund $9 million to federal credit unions from excess cash reserves due to overpayment of operating fees and reduce the overhead transfer rate to 57%. Johnson also said she wanted to continue enhancing federal credit union’s safety and soundness, as well as that of the insurance fund; supporting regulatory improvements on Capitol Hill; and continue to review regulations concerning low-income and community development credit unions, among other items. Streamlining is not only a priority within the agency, but between the regulator and the regulated. NCUA initiated NCUA Express, an e-mail service that sends items out to credit unions when they are posted to the agency’s Web site (www.ncua.gov). The program was expanded to cover the leagues. NCUA also expedited the process for adding underserved areas under its Access Across America initiative, aimed at helping credit unions serve members from all segments. Johnson said she looks forward to expanding that program. “We want all credit unions to be aware of [underserved] areas that may be within range for them to serve,” she said. There have not been any requests to whittle the process to adopt underserved areas down further, but Johnson said that streamlining is always on the table. “While these are my priorities, I am sure there will be additional issues well into the year which we will evaluate,” Chairman Johnson said. “However, I believe we are focused on an agenda that will modernize regulations and enhance credit union service. I want to reiterate that it is essential to address capital issues for credit unions as it affects the long-term financial viability of the institutions. Since joining the NCUA Board, my foremost priority has and will remain safety and soundness for the credit unions we regulate and insure. Also, it is imperative that NCUA provides regulatory flexibility to strengthen the institutions and enhance member service.” Underserved areas were also an accomplishment for 2004, the chairman noted. A record 27.4 million potential credit union members were added through 240 underserved areas adopted last year by 139 credit unions. The agency is not actively seeking new ways to measure service to the underserved, but, “We do track that membership growth after the credit unions adopt that area,” according to Johnson. She emphasized that NCUA data demonstrates that membership at credit unions that have adopted underserved areas grows 123% faster than the national average for all federal credit unions. In recognition of the troubles of community development low-income credit unions, which typically serve underserved areas, NCUA worked with community development credit union leaders to recently publish a white paper on their particular operational and examination issues (see related story). Johnson said she has “great hopes” for the white paper as an examination directive for those examiners dealing with community development and low-income credit unions. Additionally, she said the white paper could impact examinations for credit unions that have adopted or are serving underserved areas as part of their fields of membership. Also to assist those low-income credit unions, last year NCUA awarded more than $1.2 million in technical assistance grants in the areas of enhancing technology, homeownership assistance, and financial education, among other issues. Other 2004 accomplishments Johnson highlighted at NAFCU’s CEO Conference included NCUA’s three Access Across America Economic Empowerment Summits, which brought in high-level government officials; House Financial Services Committee Chairman Michael Oxley and Treasury Secretary John Snow’s participation in the Ohio Credit Union Forum; and bringing NCUA’s regulations in line with the Small Business Administration for greater participation. As of Dec. 31, 2004, nearly 200 credit unions are in SBA’s 7(a) program, increasing nearly 50% from 2003. [email protected]