What Would Luke Do?

March 20, 2015 at 8:20 am Leave a comment

Typically, your faithful blogger likes to prepare posts first thing in the morning to provide you with the most up-to-the-minute information that is going to impact your credit union day. Today, I’m cheating. As you read this post, there is a good chance that I am still sleeping, having binged on a late night college hoop extravaganza. Later today, I will be playing poker with 25 fellow hooky players. I must be rested and sharp for such a day’s work.

Why am I telling you this? I just watched an Internet broadcast of yesterday’s NCUA board meeting and I couldn’t resist giving you my take on some very good news. In fact, I am as pleased as I would be if I got dealt a Straight Flush on the River.

In the latest example of how an infusion of new blood has given the agency enthusiasm for real mandate relief, the NCUA has decided to go forward with plans to eliminate the Fixed-Assets Cap. This cap currently limits federal credit union expenses for buildings, furniture, equipment – including computer hardware and software, and real property to 5% of a credit union’s shares and retained earnings unless they get a waiver. The really good news is that NCUA is proposing to far exceed its initial proposal made in July of 2014 and not only eliminate the cap, but do so without a requirement that credit unions submit a fixed asset management program (FAM).

When NCUA initially proposed eliminating the fixed asset cap, it coupled this proposed reform with a requirement that credit unions submit a highly detailed plan and mandating procedures to insure a board’s involvement in the project. Credit unions and associations, including NYCUA, argued that while they supported elimination of the cap in concept the FAM was so onerous that the proposed “reform” was of little value. Yesterday, the agency proposed doing away with both the cap and the proposed FAM. Instead, guidance will be issued to give credit unions and regulators a sense of when a credit union is taking on too much risk.

This means that NCUA should and will have the authority to question building plans, but that credit unions should be able to execute expansion dreams so long as they can justify them. In yesterday’s board meeting, NCUA’s Larry Fazio quoted the Gospel of Luke – I’m not kidding – for the following proposition:

“Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?  For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish.’(14:28-30).

Regardless of what your religious beliefs are, with or without a formal cap, NCUA always has had and always will have the authority to question building plans on safety and soundness grounds. NCUA may not be requiring credit unions to develop a detailed FAM, but credit unions should be able to demonstrate that they have thoroughly analyzed the cost and benefits of their project by, for example, doing cost projections. They also should be able to show that the board was actively involved in the building decision. Neither of these conditions are unreasonable and I would much rather credit unions be prepared to demonstrate how their projects reflect their unique needs instead of being required to comply with inflexible regulations.

The Board also decided to go forward with an amendment establishing a standard occupancy requirement. Under existing regulations, an FCU must partially occupy the buildings acquired for future expansion within three years and unimproved property within six years. NCUA is going forward with plans to require credit unions to partially occupy property within 5 years of its acquisition whether or not it is improved. NCUA is going to put these new changes out for a 30-day comment period.

On that note, enjoy the basketball and remember people who chase straights and flushes arrive on planes and leave on buses.

Entry filed under: Compliance, Regulatory. Tags: .

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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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