The NCUA should butt out of merger reviews of federally insured, state-chartered credit unions (FISCUs) unless there is a safety and soundness issue that poses risks to the Share Insurance Fund (SIF), NASCUS said, in comments submitted to the agency.
“In the absence of any clear and compelling connection between the activity being regulated and risk to the SIF, NCUA should always defer to laws applicable to each state,” NASCUS said in a letter evaluating the NCUA’s regulatory process.
Each year, the agency seeks comments on several of its rules.
NASCUS continued, “While we appreciate that NCUA may have the statutory authority to regulate FISCU mergers, a more risk-focused approach to FISCU mergers is the more prudent course.”
Inside the letter
In the letter, John J. Kolhoff, the association’s senior vice president of policy and supervision, said that as long as there is no safety and soundness risk involved in such a merger, it should be left up to state regulators to evaluate governance issues.
He noted further that the member-to-member communications required in federal merger rules are burdensome, since many states have their own statutory requirements. This, he added, imposes double the costs of mailings to the respective institutions and confusion for the membership receiving the communications.
NASCUS also said the organization of the NCUA’s rules governing FISCUs “unnecessarily complicates compliance” for credit unions and examiners because many of the applicable provisions are scattered throughout the agency’s regulations.
“At a time when credit unions and regulators acknowledge the ever-increasing regulatory burden, reorganizing and streamlining its Rules and Regulations for ease of understanding could have an [outsized] positive impact for credit unions,” Kolhoff wrote.
He said that the NCUA should reorganize its rules to consolidate all Share Insurance Fund requirements for FISCUs and then place them in one part of the agency’s regulations.
NASCUS also called for rules that would allow credit unions to offer compensation packages with loan offers on par with the broader financial sector.
“State regulators, most of whom have experience supervising financial services entities that utilize incentive-based compensation, are well positioned to administer prudent regulations that balance needed business flexibility with supervisory principles,” Kolhoff wrote.
What comes next?
Senate Banking Committee Democrats have expressed a keen interest in the bank merger issue, with the Economic Policy Subcommittee—led by Sen. Elizabeth Warren, D-Mass—scheduling a hearing on bank mergers for Wednesday.
However, the focus does not appear to be on credit unions.
In a letter to most of the banking regulators, Warren criticized Treasury Secretary Janet Yellen and Acting Comptroller Michael Hsu for suggesting they would like to see more bank consolidation.
She wrote that banking regulators have not formally denied a bank merger in more than 15 years and that the Justice Department has not challenged one in more than 35 years.
NCUA Chairman Todd Harper was not among those receiving the letter and Warren did not mention credit unions at any point.