We have worked through a difficult regulatory period for the last five years or so, including both regulatory retraction and regulatory overreach. We had Reg Flex revoked and too too many regulations imposed upon credit unions. But is the pendulum changing directions? There have been several news reports and proposed regulations that appear to say yes.
First, there is a new proposed fixed asset rule that would essentially reinstitute the former Reg Flex exemptions regarding fixed assets. Under this proposed rule, credit unions may exceed the 5% fixed asset limitation without seeking a waiver or approval from the Region. Instead, a credit union will need to implement its own fixed asset management policy that clearly addresses the safety and soundness risk associated with exceeding the 5% limitation.
Similar to the first example, NCUA recently stated that it would be proposing to eliminate all of the limitations set out in the member business lending rule that are not imposed by statute. This would include eliminating the requirement to obtain a personal guaranty from the principals of the entity borrower. You may remember that Reg Flex also allowed for an exemption from this requirement for a personal guaranty. Again, like in the case of the proposed fixed asset rule, the focus is on the credit union managing the risk associated with its member business lending portfolio.
It appears NCUA is starting to think credit unions have the ability to manage their own risk. After all, this is what financial institutions were created to do.
Another example of the pendulum reversing direction is Board Member Metsger’s thoughts on field of membership. He stated that NCUA should be looking to allow more people access to credit union services by, for example, allowing credit unions to serve both employee groups and associations as well as communities. This is something that is possible for many state chartered credit unions and would be a welcomed change at the federal level. Board Member Metsger also spoke about several other changes to the field of membership requirements that would help credit unions grow and extend credit union services to more people.
Many of these changes have not even reached the status of officially being proposed; however, when looked at together I think we are seeing a shift in regulatory policy. It makes you question the real focus of the regulatory policy over the last five years. What was the goal of revoking Reg Flex considering it is now being reinstituted piece meal five years later? Who knows, maybe in a year or so we will be revoking the new CUSO rule!
Originally posted June 5, 2015