Let’s Put a Stop to Credit Union End Run Around Congress

The United States has three branches of government to prevent any one from having too much power. The tax-exempt credit union industry apparently skipped this civics lesson because it obviously doesn’t believe it should have to listen to Congress.

The National Credit Union Administration has proposed dramatically revising business-lending rules for these tax-subsidized institutions. Current law allows any credit union to make business loans worth up to 12.25 percent of its total assets. While lawmakers have repeatedly declined to advance controversial legislation to raise this cap, the NCUA has unilaterally done so on behalf of the industry it is supposed to regulate.

It is up to community bankers to call out the NCUA for sidestepping the cap established by Congress and attempting to extend the industry’s government-funded competitive advantage. ICBA offers community bankers a customizable letter to Congress and the NCUA to express opposition to this misguided plan.

The NCUA’s proposal blatantly skirts the statutory cap by exempting more loans from it, removing explicit loan-to-value limits and increasing the population cap for community charters by 400 percent. By piling on additional exemptions, the plan increases risks to the financial system. According to the Capital Policy Analytics Group, credit unions with the highest levels of business loans represent a disproportionate share of credit union failures, showing the risks of blanketing these institutions with new business-lending authorities.

The NCUA wants to assuage public concerns over these risks by requiring credit unions to create credit policies and risk-rate their loans. Rather than offering reassurance, this suggestion is an alarming admission of the weak oversight and regulatory standards now in place for credit unions. Credit policies and risk-rating systems have been standard community bank practices for decades—where have the credit unions been?

The truth is that aggressive and fast-growing credit unions are seeking to leverage their tax-exempt status to siphon top-performing small-business loans away from community banks, which actually pay taxes to their federal, state and local governments. Nearly 99 percent of credit unions below the federally mandated cap can already expand their lending if they choose to do so, with no change to federal law or regulation. And there are already plenty of ways to circumvent the limit because loans under $50,000 and Small Business Administration loans as large as $5.5 million don’t count toward it. Continuing to relax these congressionally mandated restrictions will only serve the interests of the riskiest, growth-oriented credit unions, while putting the broader financial sector at greater peril.

Credit union business-lending caps were established by Congress because these tax-subsidized institutions are designed to serve people of modest means with a common bond. These days, multi-billion-dollar credit unions are allowed to have virtually no common bond among members, yet they continue to operate tax-free. Meanwhile, they remain unique among lenders due to their exemption from regulations such as the Community Reinvestment Act.

Community bankers, tell Congress and the NCUA that the regulator should focus on implementing and enforcing credit union laws as they are written. If credit unions want to operate like banks, they should be taxed and required to meet the same set of regulatory standards. They can’t have it both ways.

This Month, There’s No Place Like Home

It’s hard to believe that the August congressional recess is already upon us, but in many ways the community banking industry is well-positioned to take advantage of this pause in the legislative session. While ICBA and community bankers have once again advanced a variety of regulatory relief measures through aggressive advocacy, we’re going to need a real show of force to finish the job.

And what’s true for Dorothy and Toto is true for grassroots advocacy—there’s no place like home. With party politics frustrating the advance of regulatory reforms that enjoy widespread bipartisan support in Congress, ICBA is calling on community bankers to make their voices heard while lawmakers are back home in their districts this month.

ICBA’s Main Street Matters online resource center helps community bankers invite their members of Congress to be community bankers for a day. By showing Congress firsthand the impact of the overwhelming burden facing community banks and their customers, we can really demonstrate to lawmakers what relief means for the constituents and communities they represent.

Look, I know how much work it is being a community banker—it doesn’t leave a whole lot of time to meet with policymakers and advocate on a bunch of complex regulations. But as community bankers know all too well, Congress just isn’t going to act on the excessive regulatory burdens we face day in and day out unless we get in their faces and demand change. That’s why ICBA has designed Main Street Matters and our other grassroots resources to help community bankers make their voices heard in the halls of Congress at the same time they’re doing their jobs and supporting local economies.

As I said, when it comes to grassroots advocacy, there really is no place like home. So call out your members of Congress, invite them to your community bank, show them what overregulation is doing to their constituents, and remind them that they’re not in Washington anymore!

Regulatory Burden Is Capturing Big Headlines

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While ICBA continues our full-court press toward advancing community bank regulatory relief all the way through Congress and to the president’s desk, we are also making noticeable headway in raising public awareness of the problem via the national news media. The Washington Times recently ran a special section featuring a series of articles, editorials and ICBA op-eds on community bank overregulation and the association’s proposals to address the issue.

Titled “How Excessive Regulation is Crushing Main Street: The Inside Story on the Squeeze Facing the Nation’s Community Banks,” the special section includes comprehensive coverage of the dangers of a one-size-fits-all approach to regulation and the resulting impact on consumers and local communities. It also spotlights specific areas of concern for our industry, such as Operation Choke Point, the call report, credit union oversight, barriers to de novo charters and cybersecurity rules.

The Washington Times feature complements ICBA’s ongoing, aggressive strategies to raise awareness in Washington and nationwide of the regulatory challenges facing community banks and what it means for our Main Street economy. I strongly recommend that community bankers—and anyone else concerned about the impact of red tape on American jobs and communities—read this important series and share it with your lawmakers to demonstrate the critical need for congressional action on which Main Street is depending.

Accounting Standards Next in Long Line of Cookie-Cutter Regulations

You’ve heard the old line that an elephant is a mouse built to government specifications? We’re all familiar with how government spending tends to grow rather than shrink. An equally troubling tendency perhaps even more familiar to community banks is the way governments often apply a cookie-cutter approach to their policies.

Regulations are inherently rigid and often fail to account for the unique circumstances of individuals and businesses. That often means a one-size-fits-all approach to a community banking model based on individual relationships and one-on-one service. Think Basel III—a capital framework designed for global financial institutions that nevertheless applies uniform standards on Main Street community banks.

While ICBA and community bankers have given everything they’ve got on Capitol Hill and at the regulatory agencies to institute a system of tiered regulation based on size and risk, a radical change to financial accounting due out as soon as this year threatens to deal yet another blow to locally based banking.

The Financial Accounting Standards Board is expected to release its updated accounting standards on credit losses in the fourth quarter. These new standards would require complex modeling and compel banks to recognize losses much earlier than necessary in the credit-loss cycle, penalizing community banks for investing in loans and securities.

What does this mean for community banks and their customers? For one, it will mean fewer loans. Currently, community banks don’t make an allowance for loan losses unless they have evidence that they’ll incur a default. Under the FASB’s “expected loss” model, banks would instead take a hit the moment they make a loan. Not only would banks have to recognize a loss on day one, but the proposal requires complex and expensive modeling tools that will inhibit the ability of local banks to make localized financial decisions. The Office of the Comptroller of the Currency estimates that the proposal will increase loan-loss reserves by an average of 30 to 50 percent.

Further, this plan will only add to the regulatory burdens overwhelming the community banking industry. Forecasting inputs used to predict potential loan losses will never be strong enough to satisfy the scrutiny of bank examiners. There will always be another rock to look under as examiners try to ensure a more precise model. So what we have is an approach to loan losses that is at once expensive, burdensome, time consuming—and yet never enough to satisfy examiners. Bottom line, this proposal is a double whammy of decreased lending and increased regulatory scrutiny for community banks and the customers they serve.

But there is one other saying that this whole deal brings to mind, which is that you should never try to out-stubborn a cat.

Community bankers are a stubborn lot and aren’t about to back down from this radical policy change. It’s why we’ve come up with an alternative proposal for institutions with less than $10 billion in assets that bases loan-loss provisions on historical losses for similar assets. It’s why we’ve met repeatedly with the FASB, including several times at the board’s headquarters in Norwalk, Conn. And it’s why nearly 5,000 community bankers signed a petition advocating ICBA’s simpler approach.

Our nation’s hometown banks have fought and clawed so they can continue serving their communities amid a raft of new regulatory burdens. We’re not about to let yet another cookie-cutter government regulation take hold without a fight.