Two Other Issues To keep an Eye On
Although NCUA’s final FOM regulations got most of the attention after Thursday’s NCUA Board Meeting, there were two other issues discussed that are worth keeping an eye on.
Most importantly, the Board received a briefing on the interplay between risk based capital and supplemental capital. The briefing is expected to be followed by an Advanced Notice of Proposed Rulemaking early next year. Remember an ANPR is not a suggested regulation; rather it is a regulatory mechanism to get feedback on what a proposed regulation should look like.
Specifically it examined these questions:
Who—individual or institutional investors—would be allowed to purchase these securities?
What tax laws and securities laws—such as anti-fraud laws—would apply?
What disclosure standards would apply?
NCUA seems to be laying the ground work for expanding access to supplemental capital with or without congressional help. If you thought the community bankers were upset about NCUA’s MBL amendments, or really really annoyed about the FOM Amendments, just wait to see them go apoplectic over any regulations in this area.
Another real sleeper that the NCUA addressed is to propose joint regulations mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 establishing criteria for the acceptance of private insurance to satisfy flood insurance requirements. I have a real soft spot for this act because it was a bipartisan attempt to reform a flood insurance program that provides perverse incentives for people to buy homes that are located in areas prone to flooding. Don’t get me wrong, that is their choice; I just don’t know why my tax dollars should subsidize their gamble.
That being said, the proposal was put forward a day before New York Senators, Gillibrand and Schumer wrote a strongly worded letter to the Department of Homeland Security, Inspector General, asking what is taking so long to finalize an investigation into the National Flood Insurance Program after allegations of mismanagement and fraud in the wake of Super Storm Sandy in 2012.
The Federal Emergency Management Agency, which is part of Homeland Security is ultimately responsible for underwriting flood insurance, but farms the job out to private companies. Newsday is reporting that more than 144,000 flood insurance claims were filed after 2012 and within a year complaints began to surface that adjusters were playing hardball. FEMA has now reopened the review process to reexamine more than 19,000 files, and has paid out an additional $112.6 million since Friday.
I am hoping that Federal Regulators have the good sense not to finalize these regulations before everyone can figure out what is wrong with the existing system.