December 2014
Regulatory Modernization Initiative Results
NCUA Has Provided Regulatory Relief and Streamlined Key Rules; Credit Unions Still Encouraged to Share Ideas
ALEXANDRIA, Va. (Sept. 23, 2014) – Three years after National Credit Union Administration Board Chairman Debbie Matz announced her Regulatory Modernization Initiative, the agency has provided credit unions with greater flexibility, reduced regulatory burdens and expanded powers, without compromising safety and soundness or consumer protection.
“When I first announced the Regulatory Modernization Initiative in 2011, I pledged NCUA would review, update and streamline the agency’s rules to reduce burdens where possible,” Matz said. “I also committed to applying the lessons learned from the financial crisis and to ensuring that credit unions have a prudent, forward-looking regulatory framework sufficient to address emerging risks. In the last three years, we have accomplished much, and credit unions are now operating under an improved and streamlined safety and soundness framework.”
The primary principle guiding the Regulatory Modernization Initiative was to provide regulatory relief without jeopardizing safety and soundness.
“We’ve worked hard to ensure our regulations and policies recognize the increased sophistication of the modern financial marketplace, are clearly written, and wherever appropriate are targeted specifically to areas of risk, rather than one-size-fits-all,” Matz said. “Many ideas came directly from credit union suggestions at my biennial Listening Sessions. We turned their good ideas into reality wherever feasible and prudent.”
The Regulatory Modernization Initiative’s key results include:
“When I first announced the Regulatory Modernization Initiative in 2011, I pledged NCUA would review, update and streamline the agency’s rules to reduce burdens where possible,” Matz said. “I also committed to applying the lessons learned from the financial crisis and to ensuring that credit unions have a prudent, forward-looking regulatory framework sufficient to address emerging risks. In the last three years, we have accomplished much, and credit unions are now operating under an improved and streamlined safety and soundness framework.”
The primary principle guiding the Regulatory Modernization Initiative was to provide regulatory relief without jeopardizing safety and soundness.
“We’ve worked hard to ensure our regulations and policies recognize the increased sophistication of the modern financial marketplace, are clearly written, and wherever appropriate are targeted specifically to areas of risk, rather than one-size-fits-all,” Matz said. “Many ideas came directly from credit union suggestions at my biennial Listening Sessions. We turned their good ideas into reality wherever feasible and prudent.”
The Regulatory Modernization Initiative’s key results include:
- Regulatory Relief for Small Credit Unions—NCUA finalized a rule that updated the definition of “small entity” from the previous $10 million asset threshold to exempt credit unions up to $50 million in assets from certain rules. This change doubled the number of credit unions that could receive special consideration for regulatory relief. Two-thirds of credit unions are now exempt from NCUA rules on risk-based net worth and interest rate risk. These small credit unions also now have a streamlined compliance requirement for emergency liquidity.
- Expanded Powers—NCUA finalized rules to allow credit unions to buy Treasury Inflation Protected Securities, and to purchase “plain vanilla” derivatives. With agency approval, well-managed credit unions with assets of at least $250 million and with appropriate safeguards can now invest in derivatives. NCUA also extended seven Regulatory Flexibility provisions to all credit unions, expanded potential membership in Rural Districts, and removed restrictions on charitable donations.
- Streamlined Processes—NCUA streamlined the application process for eligible credit unions to obtain the low-income designation, which nearly doubled the number of low-income designated credit unions to more than 2,100. These credit unions have the ability to expand member business lending beyond the statutory 12.25 percent of assets cap, obtain supplemental capital, raise non-member deposits and apply for Community Development Revolving Loan Fund grants and loans.
- More Flexible Policies—Responding to feedback from credit union practitioners in the field, NCUA amended its policy on Troubled Debt Restructuring. The new policy reduced paperwork burdens and provided credit unions greater flexibility to approve loan modifications for members who were having difficulty making full mortgage payments. As a result, more credit union members were able to stay in their homes throughout the crisis and into the recovery.
- Expedited Examinations—NCUA created an expedited exam process for well-managed credit unions with CAMEL ratings of 1, 2 or 3 and assets of less than $30 million. This strategy enabled NCUA to reallocate resources to credit unions posing higher risks.
- Proposed Relief—Most recently, NCUA proposed two additional regulatory relief measures for comment. One proposed rule would eliminate the five-percent cap on fixed assets; the other would allow qualified credit unions to securitize their own assets.
In the coming months, the Regulatory Modernization Initiative will continue, Matz said, as the Board seeks to find prudent ways to provide more flexibility to credit unions offering member business loans. The Board will also propose changes to the advertising rule, including incorporating new technology, such as social media, into the rule.
“We’re still listening to stakeholders for their thoughtful ideas on how to streamline and enhance our regulatory process without compromising safety and soundness or consumer protection. We’ve made great progress, but are always open to further improvement,” Matz said.