A Friday Frenzy of CU News

September 18, 2015 at 9:05 am Leave a comment

You can tell that the kids are back in school and everyone’s resigned to the fact that summer is over. The fact is that there has been more credit union news generated in the past two days than there has been for the entire summer. Here are some highlights with the usual caveat that the opinions I express are my own and that, lest you think I am suffering from forgetfulness, I reserve the right to circle back to any of these issues in an expanded form at a future date.

Board Meeting Results

At yesterday’s NCUA Board Meeting, the Board finalized an interpretive ruling increasing from $50 to $100 million the 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 designation to exempt credit unions from regulations. According to NCUA, the change means that an additional 733 federally-insured credit unions fall under the enlarged threshold.

The $100 million ceiling is actually lower than some industry advocates had argued for, pointing out that similar designations for the banking industry can be as high as $550 million. In the preamble to the updated interpretation, the NCUA responded to these critics by pointing out that the $100 million threshold actually means that a proportionate number of credit unions will be considered small.

Corporates Thrown A Bone

As readers of this blog will know, I have been critical of the industry’s efforts to ensure that all credit unions, regardless of their size, have access to emergency lines of credit. Remember, the question is not if we are going to face another financial crisis, but when. Consequently, I am pleased that NCUA took a small step to help credit unions yesterday by giving corporate credit unions the ability to provide bridge loans of up to 10 business days to credit unions awaiting funding for loans approved through the Central Liquidity Facility (CLF). These loans will be excluded from the calculation of a corporate credit union’s net assets for purposes of determining their capital requirements. Much more needs to be done in this area, but at least this is a start.

NCUA Gets Another $130 Million for Corporate Stabilization Fund

While I was skeptical of how successful it would be, NCUA’a aggressive legal pursuit of the investment banks that provided failed mortgage-backed securities to corporate credit unions continues to bear fruit for the industry. On Wednesday, the NCUA announced that it had settled one of its claims against the Royal Bank of Scotland for $129.6 million. This settlement stems from mortgage-backed securities purchased by Members United and Southwest Corporate Credit Unions.

NCUA has now recovered $1.9 billion as a result of these lawsuits. We won’t know for several years just how much money can be used to reimburse credit unions for the special assessments they’ve had to make as a result of the MBS purchases made by the failed corporates. But with the NCUA overcoming significant procedural hurdles in recent months, it is possible that its litigation will ultimately result in substantial reimbursement for credit unions. Chairman Matz deserves credit for going forward with this litigation.

Do Banks Have Reason to Fear Credit Union Loan and Membership Growth?

American Banker is reporting this morning that “credit unions are adding members and loans at an accelerated clip, though the accuracy and relevancy of these numbers are up for debate.” The article points out that for credit union advocates this increased growth is proof that people continue to lack confidence in the banking industry. To credit union critics, statistics on credit union members are both unreliable and misleading. For example, our good friend Keith Leggett concedes that while there is still some dissatisfaction with larger banks, a lot of the new credit union members “are basically members in name only.” (e.g. they are becoming members to get a car loan with no intention of doing more of their banking at the credit union)

I actually think both the critics and supporters of credit unions have valid points in this discussion. Skeptics are right to point out that a lot of membership growth is somewhat shallow. The metric that the industry ultimately has to work to improve is the number of consumers for whom the credit union is their primary financial provider. That being said, capital constraints permitting, every time a member gets a loan from a credit union, credit unions are provided with one more opportunity to make a sales pitch. Considering how difficult it is to get people to switch accounts, the sheer volume of people taking a look at credit unions should not be underestimated. Furthermore, the banking industry continues to minimize consumer dissatisfaction with its Great Recession antics at its own peril.

On that note, let’s have a nice weekend, with a special thanks to all of you who showed up at the Association’s Legal and Compliance Conference this past week.

Entry filed under: General, 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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