Pub. 10 2015-2016 Issue 3

www.nebankers.org 8 Extraordinary Service for Extraordinary Members. Washington Update The Dangers of a Captive Regulator Frank Keating , President & CEO, American Bankers Association T HE N AT I ON A L CRED I T UN I ON Administration’s latest plan to loosen the reins on credit unions and allow them to veer further from their mission has bankers seeing red. The regulatory end-run would give the already tax-exempt $1 trillion in- dustry new and potentially risky lending powers. It’s an audacious proposal that must be stopped—and you can help. First, some background. Acting as cheerleader instead of credit union supervisor, the National Credit Union Administration (NCUA) in June is- sued a proposal that grants the credit union industry’s wishes for increased business lending authority. Specifically, the proposal would: • Widen loopholes to the member business lending cap by “clarifying” that non-member business loan participations do not count toward the statutory cap and by eliminating regulatory oversight of the concen- trations of these loans. • Make the statutory capmeaningless by allowing certain credit unions to exceed the member business loan statutory authority. In fact, if both the proposed business lending and pending capital rules are adopted as proposed, the statutory cap could nearly double without any congres- sional approval. • Remove important safety-and- soundness checks and balances by, for instance, eliminating the requirement that borrowers pledge personal assets—along with busi- ness assets—as collateral for new business loans. Such a relaxation of standards makes the industry’s insurance fund vulnerable and leaves taxpayers hold- ing the bag should anything go wrong. Indeed, the NCUA has failed to prove that it is ready or able to supervise institutions with major business loan portfolios. A quick look at credit unions’ track record on business lending raises seri- ous concerns about whether they, or their regulator, are equipped to handle these loans. Since 2010, at least five credit unions have failed because of poorly run business loan programs. These failures accounted for a quarter of all losses to the insurance fund over that period. It’s a situation that does little to instill confidence in broadening credit unions’ commercial lending authority. All of this should concern not only bankers but also Congress. When Congress last weighed in on whether and how much credit unions should be lending to businesses, it voted for less, not more. In fact, the 1998 law that restricted member business loans to 12.25 percent of assets emphasized that credit unions should focus on consumer lending in order to remain true to their mission. Since then, credit unions have repeatedly implored Congress to change the rules, and lawmakers have declined to do so. Bankers had a lot—in fact, every- thing—to do with frustrating credit unions’ ambitions in Congress. Every time they pushed for amember business lending bill, you pushed back harder. You helpedmake clear to Congress that such a bill would be unacceptable to the nation’s community banks. Now we must do it again. ABA and the state associations mounted a major