Federal Reserve Building in Washington, D.C. (Source: Shutterstock)
Credit union trade organizations CUNA and NAFCU filed letters to the Federal Reserve on Friday concerning the Federal Reserve Board's proposed guidelines to evaluate requests for services and accounts at Reserve banks. It's a move the trades said is welcome, but they warned a new evaluation framework could add "unnecessary risks to the payment system."
The Federal Reserve's proposed guidelines added a tiered framework for evaluating account and services requests at Reserve banks. According to the guidelines, federally-insured credit unions (FICUs) are considered Tier 1 institutions, the lowest risk category. Non-federally insured organizations are considered a higher risk and would be included as Tier 3 institutions.
CUNA and NAFCU asked the Fed for more clarification for risk assessment standards for those Tier 3 institutions "that are at least equivalent to the prudential frameworks governing federally-insured institutions."
NAFCU Senior Counsel for Research and Policy Andrew Morris wrote, "Unlike banks, credit unions face strict limits on investments they can carry, business loans they can originate and investments they can make. In general, these limits reduce the complexity of credit union balance sheets and greatly minimize the already remote possibility that credit unions would give rise to risks capable of affecting the broader U.S. financial system. Furthermore, credit unions do not operate through complex holding company structures that could frustrate efforts to develop a holistic assessment of risk."
According to a statement from NAFCU, Morris identified two forms of criteria for the proposed guidelines to include:
- That the guidelines not entail additional burdens for FICUs seeking or currently accessing Reserve Bank accounts or services.
- That non-federally insured entities be subject to an appropriately higher level of due diligence and monitoring to account for unique risks and differences in prudential oversight.
In a statement, CUNA said its main concern is the Reserve Banks will apply these proposed guidelines inconsistently, "which could lead to different outcomes for applications and possibly differences in how entities are supervised for ongoing compliance."
CUNA's letter read, "For eligible entities, access would be conditioned on meeting the requirements in the Guidelines, which allows the Board and Reserve Banks to ensure entities given Federal Reserve accounts do not add risk to the payments system. The Board's goal should be to apply a similar level of requirements with processes to ensure compliance, as is in place for a federal or state regulated credit union or bank. Any entity not meeting these requirements should be denied access to the payments system."
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Michael Ogden
Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.
