Despite a number of concerns about creating a house divided, credit unions largely support NCUA's proposal to raise its definition of "small credit union" from $50 million to $100 million — and actually would like to see the threshold raised even higher.
Though not all of the comments filed with NCUA by Monday's deadline have been posted to the agency's site, almost all of those filing comments support raising the definition well beyond the $100 million proposed by the agency.
As NCUA Board Member Mark Watters suggested when the regulator unveiled its proposal in February, most commenting on the proposal supported raising the definition to $550 million, which would be on par with the FDIC's definition of small.
But there were some key caveats, including concerns about the Office of Small Credit Union Initiatives losing its focus on the "truly small" CUs.
"Frankly, we believe the asset threshold should mimic the FDIC's at $550 million," wrote Barbara Bean, CEO of $12 million Cal Poly FCU. "But there is no way NCUA's Office of Small Credit Union Initiatives could service the needs of credit unions up to $100 million (let alone $550 million) without significant growth to its budget."
Another CU that is still considered small under the current definition said it welcomed the proposed increase, as it has plans to be well over the current $50 million mark in the not-too-distant future.
"Our credit union is growing at a rapid pace and we are entertaining a series of planned mergers that could make our credit union's asset size increase to over $200 million within five years," wrote Robert Baron, vice president of marketing at the $46 million Technicolor FCU. "We wish to achieve this grand objective to reduce our expenses through economies of scale, expand our market reach and increase our competitiveness by deploying new delivery channels, enhanced technology and better member service. Small credit unions fall short in all of these areas and growth is the only solution. However, increased regulation as a reward (or really a punishment) for growth only hinders our ability to grow."
At least one CU was cautious about going all the way up to $550 million right away. Alan Cortum, CEO of $48 million Valley Oak CU advised considering $250 million, suggesting that NCUA and the credit union movement may not want to take their cue from banks.
"If NCUA is really trying to help the small credit unions survive, this change is a very positive first step," Cortum added. "We have lost far too many small credit unions already due to regulatory compliance costs."
NAFCU also supported raising the threshold to $550 million, but suggested that because the purpose of raising the threshold is to provide regulatory relief to a greater number of credit unions, the agency should really be exploring better ways than setting arbitrary asset size thresholds in order to provide real regulatory relief for credit unions.
"Whether a credit union is complex shouldn't be defined by asset size but by the products and services being offered," NAFCU Director of Regulatory Affairs Alicia Nealon told Credit Union Journal. "When the first risk-based capital rule came out proposing a straight definition by asset size, we thought credit unions would like that, they'd like an easy, bright-line rule. We were surprised to find they didn't. We polled our members extensively, and they do not believe in defining a credit union by its asset size. We have members with $100 million in assets that are engaged in some very complex products and services such as loan participations, member business loans, derivatives. Then on the other hand, we have credit unions with $500 million in assets that have only the simplest of offerings. There's a better way to provide credit unions with the regulatory relief they need."
Still, as the regulator appears to be set on using asset size as the definition, NAFCU said it supports raising the threshold to either $550 million, in alignment with the FDIC, or to the $175 million used by the Consumer Financial Protection Bureau's for purposes of forming panels under the Small Business Regulatory Enforcement Fairness Act.
In response to small CUs being concerned about OSCUI's ability to help small credit unions if the asset threshold is raised, OSCUI Director Bill Myers has promised that his office's focus would remain on credit unions below $50 million in assets. While some small credit unions have expressed concern that such a promise is easily broken if it's not specifically written into the rule, Nealon said credit unions should take a wait-and-see approach.
"I believe that Bill Myers and his entire office has a real commitment to the smallest of credit unions," Nealon told Credit Union Journal. "Some of the webinars, for example, already are open to larger credit unions, and that doesn't dilute OSCUI's efforts any. I have faith in that office and that it will focus the majority of its manpower on smaller credit unions."
CUNA, which conferred with its Small Credit Committee when it crafted its comment letter, was the only group that didn't suggest going beyond the $100 million threshold advanced in the proposed rule. The reason: it would keep the rule in alignment with how NCUA is defining a "complex" credit union in its proposed rule on risk-based capital.
Moreover, that is also the most likely outcome, suggested CUNA's Lance Noogle.
"I think the final rule will wind up with the $100 million threshold," Nagle, who worked at NCUA when the agency was crafting its original RBC proposal, told Credit Union Journal. "It just keeps is clean and is less confusing if the definitions are consistent across these rules."
CUNA also made a point of asking the regulator to specify in the final rule that the new definition pertain only to reg relief, such as the triggers for prompt corrective action and interest rate risk, but not for the purpose of OSCUI's efforts to help small credit unions. "We asked NCUA to keep OSCUI access for credit unions with $50 million in assets and under to prevent OSCUI resources from being spread too thinly," Nagle explained.