Intended to provide regulatory relief for credit unions, the new proposal eliminates a provision in the current fixed-assets rule that establishes a 5% aggregate limit on investments in fixed assets for federal credit unions with $1 million or more in assets.

The new proposal also removes the provisions in the current rule related to waivers from the aggregate limit. In addition, the proposal simplifies the fixed-assets rule's partial occupancy requirements for a federal credit union's premises acquired for future expansion, establishes a single six-year time period for partial occupancy of the premises and removes the 30-month requirement for partial occupancy waiver requests.

“It's important to remember that over-concentration of fixed assets can still be dangerous, and, as we know, with greater freedom comes greater responsibility,” NCUA Board Chairman Debbie Matz said to back up the proposal. “We do know that high levels of fixed assets have been a primary or contributing factor in 16% of federal credit union failures since 2009. Therefore, each credit union's board of directors would have to set limits that are appropriate and reasonable for their operations after the rule is finalized.”

Dan McGowan, president/CEO of the $192 million Pioneer West Virginia Federal Credit Union in Charleston, W.Va., applauded the NCUA's removal of the fixed-asset limitation.

“I don't view it as a direct help in the competitive sense, but it does free us up to make our own decisions, utilizing the capital structures of our credit unions to our best advantage,” he said. “The removal of a regulatory one-size-fits-all mandate allows the leadership of each institution to decide what's in their best interest without being micromanaged by the NCUA.”

McGowan said it is certainly not a good idea to tie up too much of an institution's assets in fixed assets.

“I'm sure that was the rationale for the original regulation,” he said. “But 'too much' can be in the eye of the beholder and highly dependent on specific circumstances and opportunities. There may be a temporary need to be a little heavy on fixed assets if it makes sense in the longer term.”

As an example, McGowan cited a credit union merger where one of the parties is flush with fixed assets that would later be liquidated.

Since 2009, Pioneer West Virginia's fixed-asset ratio has risen from about 3.8% to its current ratio of about 4.3%, after dipping as low as 2.4%.

“Fortunately, the asset number, serving as the denominator in the ratio, has helped keep the ratio down as we've grown in size,” McGowan said. “The big uptick in the ratio in September of 2013 was due to a merger with a failing institution, which was in distress because they had invested too heavily in fixed assets.”

McGowan said the credit union was healthy enough to take the hit but is still in the process of liquidating two properties owned by the other credit union.

James Norris, president/CEO of the $105 million Montgomery County Employees Federal Credit Union in Germantown, Md., said he was very pleased to hear the news about the NCUA's proposal, which would help his credit union compete with banks.

“For the past five years, our credit union has been working within the restriction due to being over the 5% limit,” he said. “We've had to request waivers just to purchase IT equipment needed to replace old technology as well as any other purchases. I am happy to say that we have reduced our fixed-asset ratio significantly over the past five years, and I look forward to the expedient passage of this proposal in order to safely add fixed assets to address the satisfaction, security and profitability of our members, and continue to enable us to compete against the banks.”

Bogdan Chmielewski, president/CEO of the $1.6 billion Polish & Slavic Federal Credit Union in Brooklyn, N.Y., said eliminating the fixed assets cap would not currently impact his credit union.

“However, we believe the board's initiative to provide greater flexibility and regulatory relief is a step in the right direction,” he said. “I am looking forward to reviewing the updated supervisory guidance to examiners that will be released once the fixed-asset proposal is finalized. The proposal may help us in the future as our credit union grows and we look to expand into new markets.”

If the NCUA board finalizes the 2015 proposal, the agency plans to issue an updated supervisory guidance to examiners that would be shared with credit unions. This guidance would outline expectations for credit unions in the demonstration of appropriate due diligence.

NCUA Director of Examination and Insurance Larry Fazio said the agency currently has a very early draft of the guidance.

“The guidance will ensure examiners effectively identify any risks to safety and soundness due to a federal credit union's excessive investment in fixed assets,” the proposal said.

Suzanne Weinstein, chief financial officer of the $192 million Orlando Federal Credit Union in Orlando, Fla., said removing the 5% fixed-asset cap would benefit small to mid-size credit unions attempting to increase their footprints in local communities or update their technology to better protect their members' data.

“Frequently, credit unions bump up against the 5% barrier with a well-developed strategy and strong financials,” she said. “As the Central Florida population grows, our member-owners are moving to suburban communities outside Orlando.”

Weinstein said Orlando Federal Credit Union needs a presence in these communities to continue supporting their existing members and develop new relationships.

“By removing the 5% fixed-asset requirement, the credit union will be able to add additional offices without exceeding the threshold or being required to request a waiver,” she said.

Jane Dobbs, president/CEO of the $137 million Canyon State Credit Union in Phoenix, Ariz., said she hopes the Arizona Department of Financial Institutions, which currently uses the 5% cap, seeks parity with the NCUA's latest proposal on fixed assets.

“Having spent time in federally chartered credit unions, I am pleased to see this proposal approved as it shows the regulators' willingness to support ongoing regulatory relief,” she said. “This would have a positive impact on our credit union in relation to having the flexibility to thoughtfully improve our competitive position with banks.”

Dobbs said eliminating the cap would give her credit union the ability to invest in areas the board and senior team agree are important to the credit union's membership and the ongoing health of the institution.

“Having the flexibility to responsibly manage this ourselves within a strategic business plan will ensure that we can compete with banks,” she said.

Metsger said the NCUA had to propose a new rule because the revisions go beyond the scope of the July 2014 proposal.

“The main reason we don't need to micromanage in this area is that credit unions and their management have a built-in incentive not to invest in assets on which they can't earn a return,” he said. “This issue is largely self-regulating because credit unions want to earn a return for their members on every dollar they possibly can, and fixed assets don't earn the return that a good loan provides.”

NCUA Board Member J. Mark McWatters said he thought the original proposal meant an increase in regulation, but called the revised version a move in the right direction.

The revised proposed rule has been put out for a 30-day comment period.