Conversion Topic Doesn't Come up at Senate Banking Committee Hearing, Credit Union Issues Given Short Shrift

WASHINGTON – Unlike the previous appearance of federal financial regulators before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, the June 21st appearance of regulators before the Senate Banking, Housing and Urban Affairs Committee lacked any of the hard questions on credit union to bank conversions. Prompted in part by visits from Gary Base and lobbyists on the conversion issue prior to the hearing, a number of the representatives on the Subcommittee came to the meeting prepared to ask hard questions of NCUA Board Chairman JoAnn Johnson about the way the agency had handled the attempts of the $1.4 billion Community Credit Union and $1.1 billion OmniAmerican Credit Union to convert their charters to those of mutual banks. But the topic never came up in the Senate hearing and overall credit union regulatory relief issues were lost as Senator Mike Crapo (R-Idaho), who chaired the hearing, and Senators Paul Sarbanes (D-Md.) and Thomas Carper (D-Del.) spent most of their time questioning whether the banking regulatory agencies had taken enough time to meet with consumer groups in preparing their regulatory relief proposals. “We have heard complaints from some consumer groups about not being heard,” said Senator Sarbanes. “It really can’t be called a truly consensus proposal on regulatory relief if only the banking industry and regulators get together and strike a bargain,” Sarbanes said. Questioning directed at the regulators was cut short by the Senators being called to the Senate floor for a vote. While the hearing did not touch on credit union issues specifically, it did contain things that should encourage credit union attempts to keep moving forward on regulatory relief. Specifically, Crapo encouraged the regulators to try to streamline the process of moving forward with the 136 different regulatory relief proposals that the regulators had prepared. “One way I think we can move forward is for each of the regulators to let us know whether there are any of these proposals about which you have any misgivings from a safety and soundness perspective,” said Crapo. Crapo wanted the feedback from the regulators quickly so that the Committee could both better discern which proposals from among the 136 it should include in the bill and keep the whole process moving forward quickly. “I want to markup on this fast,” Crapo said. NCUA Board Chairman JoAnn Johnson was only able to read from a short portion of her prepared testimony since all the regulators were on a short time frame for the hearing. Some of her testimony touched upon check cashing and wire transfers for nonmembers as well as the technical correction to the definition of net worth for mergers that the House of Representatives passed two weeks ago. The main portion of her testimony, however, addressed the Prompt Corrective Action reform that the agency has been promoting. “The guiding principle behind PCA is to resolve problems in federally insured credit unions at the least long-term cost to the NCUSIF,” Johnson said. “This mandate is good public policy and consistent with NCUA’s fiduciary responsibility to the insurance fund. While NCUA supports a statutorily mandated PCA system, the current statutory requirements for credit unions are too inflexible and establish a structure based primarily on a `one-size-fits all’ approach, relying largely on a high leverage requirement of net worth to total assets,” she said. “This creates inequities for credit unions with low-risk balance sheets and limits NCUA’s ability to design a meaningful risk-based system.” Johnson also enclosed a chart with her testimony that, she said, would indicate that changing the PCA regulations would not put credit unions at risk. She pointed out that 107 credit unions would improve into a higher PCA category given their relatively low-risk profiles. At the same time 41 credit unions would experience a reduction in their net worth category, thus accelerating corrective action for these inadequately capitalized credit unions. In fact, almost all of the 29 downgrades from well or adequately capitalized to undercapitalized under the new system are due to the proposed new risk-based requirement, indicating the new system is better recognizing risk in relation to net worth levels,” she said. “I would also point out that the proposed new tandem system is rigorous in respect to thinly capitalized credit unions as no significantly or critically undercapitalized credit unions are upgraded under the proposed system, and the overall level of critically, significantly, and undercapitalized credit unions increases,” she added. [email protected]