It was interesting how during the testimony at the Feb. 10, 2015 Senate Banking Committee meeting regarding regulatory relief, Toney M. Bland, senior deputy comptroller of mid-sized and community bank supervision at the Office of the Comptroller of the Currency, who was sitting right next to Larry Fazio when he was requesting additional regulatory authority for NCUA rather than how to provide regulatory relief, talked about how the OCC had prepared and released a white paper to community banks about how to create collaborative efforts to share resources, reduce costs and leverage specialized expertise.
This white paper from the OCC is essentially encouraging mid-sized and community banks to form the banking equivalent of CUSOs! All the while, the NCUA representative to the Senate Banking Committee hearing sitting next to him (Larry Fazio) has been sending negative messages to credit unions doing the same thing with CUSOs, through CUSO risk weighting in RBC2 and the CUSO regulation and by requesting "vendor authority" for the NCUA to have direct regulatory authority over CUSOs (as well as credit union vendors).
I have no doubt that this is a perfect example of small banks and their regulator learning that they need to be more like credit unions, and the OCC is actively encouraging community banks to set up service corporations to do so. I also have no doubt that Mr. Bland's comments fell on the deaf ears of a fellow regulator (if he paid any attention to the bi-partisan comments being make by the Senators) charged with reducing the regulatory burden for credit unions and creating a regulatory environment that encourages and rewards innovation.
It was also interesting that Bland, the witness for the OCC and regulator for community banks, could not say enough about the benefits of collaboration! If you want to understand what you may be missing about the benefits of utilizing CUSOs, you should simply read Bland's 10-page white paper, which strongly encourages community banks to collaborate on operational services.
The white paper makes a convincing argument that collaboration is very important to meeting the operational needs of community banks. If we only had that type of encouragement from the NCUA, what a positive regulatory climate we would have! While I cannot include the entire contents of the OCC white paper "An Opportunity for Community Banks: Working Together Collaboratively," which describes various types of collaboration opportunities, in this article, I can point out some of the areas of potential opportunity, such as: Administrative and back-office operations, human resources management, regulatory compliance, loan documentation, contingency planning and loan participation alliances.
The white paper points out some of the many benefits of collaboration, which include: Gain operational or financial efficiencies, pool resources and spread costs for capital-intensive products and services, increase ability to acquire and support current technology and avoid obsolescence, conserve capital for other strategic business opportunities, increase management focus on core business functions, refocus limited internal resources on core functions, obtain or share specialized expertise, increase reach and availability of services, accelerate delivery of products or services through new channels and earn greater credibility.
The OCC white paper goes on to point out how banks can invest in operating subsidiaries, which can only engage in activities that banks are authorized to engage in, as well as bank service companies. By the way, these entities have no special risk-based capital requirements, as they are consolidated by banks as wholly-owned subsidiaries. These subsidiaries are the most similar to CUSOs.
I hope this OCC white paper encourages credit unions to pursue collaboration and understand that some financial services regulators see it as a benefit!
Jack Antonini is president/CEO of NNACUSO. He can be reached at 713-208-0989 or [email protected].
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