Good News: You’re Small

February 11, 2015 at 8:10 am 1 comment

In Congressional testimony yesterday, NCUA’s Larry Fazio announced that the agency would propose regulations providing regulatory relief to credit unions with less than $100 million in assets. Specifically, NCUA will be changing the definition of what constitutes a small entity credit union from one with $50 million in assets to one with less than $100 million in assets. Federal law gives NCUA the responsibility to consider the impact that proposed regulations have on smaller credit unions and to exempt such institutions from regulatory mandates when appropriate.

In January of 2013, NCUA amended the definition of the small entity from those with less than $10 million to those with less than $50 million in assets. At the time, NCUA estimated that this change meant that 67.8% of federally insured credit unions were designated as “small entities.” If NCUA follows through with its latest proposal, Fazio estimated that 77% of all credit unions would be eligible for enhanced regulatory relief.

Credit unions have already gotten a preview of how important such a shift could be with NCUA’s announcement that it is proposing to increase the threshold for Risk-Based Capital compliance from $50 to $100 million. In addition, credit unions with less than $50 million in assets were exempted from enhanced interest-rate risk policies. Going forward we won’t know for sure precisely what regulatory relief credit unions will entitled to until the regulation is finalized. At the very least, credit unions with less than $100 million in assets will be eligible for increased assistance from NCUA’s Office of Small Credit Union Initiatives and a framework has now been put in place to extend regulatory relief to a large majority of credit unions.

Now, don’t get me wrong. I think NCUA’s proposal is a great idea; but, the more the industry codifies distinctions between big and small credit unions, the more challenging it becomes to ensure that fundamental baseline distinctions between all credit unions and banks remain intact. You can bet a bank lobbyist will soon be arguing that if large credit unions are so different than small ones, why shouldn’t they be taxed. In addition, while regulatory relief is a welcome and important step by the NCUA, it will likely do little to halt the long term consolidation of the industry or the fact that those with $500 million or more in assets are the ones driving its aggregate growth.

As a result, I would like to see the industry couple the NCUA’s push for regulatory relief with an emphasis on recruiting the next generation of executives. I see a tremendous amount of enthusiasm displayed by people in their twenties and early thirties. I also see a fair number of people in their late fifties and early sixties nearing retirement. Mergers and consolidations are inevitable, but let’s make sure that credit unions don’t dissolve or merge because of a lack of potential leadership.

On that note, enjoy your day.

Entry filed under: Advocacy, Regulatory. Tags: , .

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1 Comment Add your own

  • 1. A Friday Frenzy of CU News | new york's state of mind  |  September 18, 2015 at 9:05 am

    […] size of credit unions considered small under the Regulatory Flexibility Act. As I explained in a previous blog, the true impact of this change won’t be known until we see how aggressively NCUA uses the […]

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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