CURIA II: "Not your father's Oldsmobile"

Before pulling the plug completely on its struggling Oldsmobile division, the marketing wizards at General Motors mounted a campaign a few years back to attract younger drivers to its sagging Olds lineup. The now famous tagline, “This is not your father’s Oldsmobile,” no doubt will live on-long after the last Cutlass or Delta 88 rusts away. I was thinking about that tagline when the new “model” of CURIA was introduced in May, not that the original Credit Union Regulatory Improvements Act was anything like your father’s Oldsmobile. The original, introduced in the second half of the last Congress, was more like a prototype, and the 2005 model, CURIA II, is a new and improved version with a lot more under the hood, and a lot more showroom appeal, to boot. While the provisions of the new CURIA have been reported in Credit Union Times, it bears mentioning again what the differences are in the new bill, their importance for credit unions and, perhaps most timely, the opportunities credit unions have this summer to build support for CURIA when their members of Congress are home for the August recess. This winter, the authors of CURIA, U.S. Reps. Ed Royce, (R-Calif.), and Paul Kanjorski, (D-Pa.), went back to the drawing board and reengineered their regulatory relief package for credit unions. CURIA II has many of the basic features that we need in a regulatory improvements vehicle but also includes two new ones that make it much more appealing to credit unions and regulators. This new CURIA, H.R. 2317, introduced on May 12, also includes a number of provisions in the Financial Services Regulatory Relief Act, which passed the House last year and is expected to be reintroduced later this summer. The difference between CURIA and so-called Reg Relief is that CURIA is a stand-alone bill designed specifically to address credit union needs, while Reg Relief is a broader bill containing relief measures for credit unions, banks and thrifts. CURIA also has provisions that weren’t contained in the Reg Relief package that passed the House in the last Congress. Another bill, the Net Worth Amendment for Credit Unions Act, H.R. 1042, which has already passed the House this year, is also contained in CURIA II. Sticking to my automotive analogy, you might think of the broader Reg Relief package as one of those tractor trailers you see on the highway carrying new cars to the dealer. Each of the cars on the trailer corresponds to a specific relief measure that most likely will get wrapped into the larger Reg Relief bill. Our job as credit union advocates is to make sure CURIA II gets loaded on the trailer; and upon its arrival, we might also negotiate for some dealer-installed options to make our vehicle even better. The way we do that, as I will discuss shortly, is to get as many cosponsors as possible for our bill. The single biggest change in CURIA II is a provision to alter net worth requirements for prompt corrective action (PCA). Title I of the bill would bring all credit unions under risk-based net worth requirements and would also provide for a specific risk-based net worth ratio. As concerns over capital constraints were raised within the credit union community, NAFCU realized that any solution would necessitate a modification to PCA. We encouraged and supported NCUA Chairman JoAnn Johnson’s development of a specific risk-based approach to capital to replace the current, “one-size-fits-all” standard that treats all capital the same. Our Research Department has determined that the vast majority of federally insured credit unions will see favorable improvement in their net worth ratios under the new provision. There would be a slight increase in under-capitalized credit unions as well, but the analysis shows that the benefits of the risk-based approach far outweigh the drawbacks. At a recent symposium in Washington, NAFCU Senior Economist Jeff Taylor noted that by lowering credit unions’ leverage requirements, the risk-based approach would free up capital that could be used by credit unions for higher share dividends, investments in technology and other purposes that would help credit union members. This new risk-based provision provides the kind of capital modernization our industry needs and to me is the most appealing new feature in CURIA II. Another new item, which I have noted, is the bill’s incorporation of the Net Worth Amendment for Credit Unions Act. That provision addresses unintended consequences of the Financial Accounting Standards Board proposal to require merging credit unions to use the “purchase” method to account for retained earnings. Under the purchase method, the surviving institution would not be able to count the retained assets of the acquired credit union. CURIA II would clarify that, for purposes of PCA, a continuing credit union may include the retained earnings of the merging credit union in calculating net worth. When the 108th Congress adjourned last year, CURIA had attracted a total of 69 cosponsors (including the bill’s authors). As I write this, we have already surpassed that number, an indication that we are off to a much faster and stronger start in the new Congress with CURIA II. We need to keep the momentum going this summer so that members of Congress understand the necessity of improving the regulatory environment for credit unions. Congress has already held hearings on regulatory relief in both the House and Senate, where NAFCU testified in favor of the provisions in CURIA II. In addition, NAFCU has mounted a grassroots campaign urging credit unions to contact their representatives and ask for support of the bill. The new and improved CURIA will be discussed at NAFCU’s Annual Conference in Las Vegas, and conference-goers will be able to fill out their messages to Capitol Hill right from the conference. I think once credit unions “look under the hood,” they’ll see that CURIA II is a marked improvement and warrants their enthusiastic support.