CUNA Regulatory Comment Call

March 21, 2000

Regulatory Flexibility and Exemption Program


The National Credit Union Administration Board has issued for comments through May 21, 2000 an Advance Notice of Proposed Rulemaking on a proposed Regulatory Flexibility and Exemption Program. Under the program, credit unions with a Camel rating of 1 or 2, a net worth ratio of 9% and which meet risk-based prompt corrective action net worth requirements, if any, would be eligible to for a complete or partial exemption from a number of NCUA's regulatory requirements. For more information about this proposal, please feel free to contact CUNA's Associate General Counsel Mary Dunn at or Assistant General Counsel Michelle Profit at

This program could be extremely important for federal credit unions. CUNA's RegWatch of March 21st focused exclusively on the Reg-Flex program and provides all the details contained in the notice.

Credit unions are strongly encouraged to comment on the proposed program and to share their views with their leagues and with CUNA by forwarding them to Mary Dunn. Please let us hear from you by May 10, if possible. We also recommend that you provide a copy of your comment letter to all three NCUA Board members separately. Their addresses are: National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314

To facilitate the development of your responses, here are a number of questions to think about regarding the Reg-Flex proposal.

Questions to Consider

Do you agree that a healthy credit union should be able to qualify for additional regulatory reflexbility in the manner NCUA is proposing?

Will such a program encourage a credit union to remain healthy or to take unmitigated risks?

Do you agree with the criteria NCUA is proposing for eligibility - Camel 1 or 2 rating for two consecutive exams, at least 9% net worth ratio, and meets any risk-based net worth requirements? If not, what should the criteria be?

Do you agree with the underlying assumption of Reg-Flex that credit unions that qualify based on the proposed criteria have a proven track record and necessary net worth to mitigate any risks the Reg-Flex program may present?

Would credit unions that qualify for Reg-Flex have an unfair competitive advantage over those that did not qualify?

Assuming you support the Reg-Flex program, which process for obtaining Reg-Flex would you prefer -- an automatic exemption or one in which approval must be granted from the regions and regions notified whenever conditions affecting the designation change?

Do you agree that a Regional Director in his or her sole discretion should be able to revoke a Reg-Flex designation, without advance notice?

Do you agree that the fixed assets rule should be included in Reg-Flex?

Should credit unions that meet the Reg-Flex standards have to apply for a waiver from the fixed assets rule?

Should a Reg-Flex credit union have any regulatory limits on its fixed assets? Should the credit union's business plan contain such limits?

Should a Reg-Flex credit union be required to have a plan to fully utilize any fixed assets it leases?

Do you agree that Reg-Flex credit unions should be exempted from some investment requirements?

Do you agree with the ones NCUA has identified for Reg-Flex treatment -- quarterly stress testing, discretionary delegation of investments to third parties, extended maturies for zero coupon investments, and investments such as stripped, mortgage-backed securities and others that are now prohibited?

Are there specific risks associated with these investment activities that the Reg-Flex programs would address?

Are there other provisions of the investment reg that should be included in Reg-Flex?

Do you agree with the other areas NCUA has identified for Reg-Flex?
Charitable Donations     Yes _____ No ______
Appraisals     Yes _____ No ______
Shares for Public Units and Nonmembers     Yes _____ No ______
Eligible Obligations     Yes _____ No ______

Should service to low-income and underserved be a criterion for participating in Reg-Flex?

Should Reg-Flex provide an incentive for serving the underserved?

Do you support NCUA's proposal that a credit union that expands to serve an underserved area should have its asset base frozen for purposes of calculating its operating fee to NCUA?

Are there other incentives Reg-Flex could provide to promote service to the underserved?

Should Reg-Flex credit unions have greater flexibility to use incidental powers?

Should Reg-Flex credit unions be exempt from leasing restrictions?

Should Reg-Flex credit unions have different exam cycles or other more favorable exam treatment than other credit unions?

What guidance should examiners be given to ensure credit unions are not discouraged from managing additional risk? Should peer comparisons be eliminated? Should delinquencies and charge-off rates be less important to the examiner?

Are there other areas you feel should be included in Reg-Flex, such as expanding the definition of low-income group to include more groups in a credit union's field of membership?

Are there CUSO restrictions that should be lifted as part of Reg-Flex?

What about member business loan requirements that are not statutory (the asset limit on MBLs is required by law)?

What about the use of audits for all or part of an exam?

Do you think that NCUA should permit some flexibility in dealing with the regulations it identified as part of Reg-Flex for all covered credit unions and not just those that qualify for Reg-Flex?

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •