The NCUA Board voted unanimously in favor of four supervisory actions Thursday, including one that will change the definition of "small entity" in the Regulatory Flexibility Act from credit unions with less than $50 million in assets to credit unions with less than $100 million in assets.
At its open board meeting, the agency first approved the expansion of the community charter for the $342 million Charlotte Metro Federal Credit Union in Charlotte, N.C., to include 10 counties in the Charlotte metro area. The credit union previously served Mecklenburg County only.
Next, the board gave the green light on a rule proposed in April 2015 to exclude Central Liquidity Facility-related bridge loans from the aggregate unsecured lending limit and calculation of minimum capital requirements for corporate credit unions. CLF-related bridge loans are made by corporates to member credit unions that have been approved for a loan, but are awaiting funding. According to a memorandum, the board received seven comment letters on the proposal, all of which were in favor of it.
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"It's a win-win because credit unions can get access to liquidity immediately, and corporates can provide a valuable service to their members without affecting their safety or soundness," NCUA Chairman Debbie Matz said in regard to the proposal.
The board then voted in favor of adjusting the maximum amount of civil money penalties to account for inflation – something that had not been done since 2009.
Finally, the board approved a change to the Regulatory Flexibility Act that would change the definition of "small entity" to include all credit unions with fewer than $100 million in assets. The Regulatory Flexibility Act required the NCUA to determine and consider the impact of proposed and final rules on small entities, and with this change, more credit unions will be considered for regulatory relief in future rulemakings.
Competitive disadvantages within the credit union industry, relative threats to the National Credit Union Share Insurance Fund and the need for broader regulatory relief were all considered in the board's approval of the new rule, according to a memorandum.
Doubling the threshold from $50 million to $100 million gives 733 additional credit unions coverage under the Regulatory Flexibility Act, bringing the total number of credit unions covered to 4,690.
Matz said the agency would continue to seek opportunities for regulatory relief for small credit unions, and recounted the drastic changes to the small credit union definition that have taken place since she joined the NCUA in 2002. Back then, the small credit union threshold was $1 million, and in 2003, the threshold was revised to $10 million before jumping to $50 million in 2012.
"The intent is to extend the threshold to include more credit unions, and ensure it keeps pace with changes in the industry," she said.
Board Member J. Mark McWatters said the increase in the small credit union definition did not go far enough, and at $100 million, still gives credit unions a disadvantage when competing against banks. The FDIC, OCC and Federal Reserve all use the Small Business Administration's asset threshold of $550 million for determining small entity status under the RFA.
"Since credit unions compete against banks, the credit union cap of only $100 million potentially exposes credit unions to a greater regulatory burden than that of comparably positioned banks," he told CU Times.
Matz disagreed.
"To me, just as compelling as the economic analysis and legal rationale are small credit union officials who urged us not to dilute the Regulatory Flexibility Act analysis by including almost every credit union in the country. I took those concerns seriously. Redefining small up to $550 million would mean 93% of all credit unions would be considered small," she told CU Times. "I haven't spoken to any small credit union officials who think a $550 million credit union is truly small.
McWatters disagreed with criticism that increasing the threshold to $550 million would capture a substantial majority of credit unions.
"So what, small is small and credit unions should not be placed at a regulatory disadvantage simply because the population of credit unions consists of smaller dollar entities relative to the banking industry," he said.
Matz responded, saying the law does not permit NCUA to consider banks when defining small credit unions.
"The Regulatory Flexibility Act requires NCUA to conduct economic analysis in considering relief for small credit unions – and the banks' threshold of $550 million could not be justified with credit unions' economic data. In every key metric, credit unions up to $550 million are performing much better than credit unions under $100 million," she said.
Matz also said the NCUA's Office of General Counsel advised the regulator to limit its definition of small to a subset of credit unions, rather than considering the entire financial services industry.
"The law requires NCUA to consider 'differing compliance or reporting requirements or timetables that take into account the resources available to small entities….' In order to follow the law, 'differing compliance or reporting requirements or timetables' can only be considered within the federally insured credit unions to which NCUA's regulations apply," she said.
McWatters also said increasing the threshold would not threaten the share insurance fund.
"The RFA merely requires the NCUA to analyze the regulatory burden of proposed and final rules on small entities. It certainly does not mandate, or even suggest, that the agency enact irresponsible rules that could aversely affect the safety and soundness of the credit union community or the share insurance fund," he said.
Matz added that it's important to note the small credit union threshold doesn't limit regulatory relief to credit unions with fewer than $100 million in assets.
"For each rule, the board has authority to exempt or ease compliance for credit unions of any asset size we determine to be prudent. So while the $100 million threshold provides regulatory relief consideration for 76% of all credit unions, we will continue to seek other opportunities to provide regulatory relief for even more credit unions," she said.
Metsger said the increased threshold provides "an appropriate balance to include a broader group of credit unions," and also noted that the change does not mean credit unions with assets ranging from $50 million to less than $100 million would be applicable to receive Office of Small Credit Union Initiatives benefits.
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