Thursday, June 27, 2019

Study Finds CUs Failing in Mission to Serve People of Small Means

Politico's Morning Money newsletter on June 25 reported that a new research study found that credit unions are not meeting their public policy mission of serving people of small means.

The research report, The Credit Union Equality Commitment: An Analytical Assessment, was conducted by Federal Financial Analytics, a Washington, D.C.-based public policy think tank.

This study is different from most recent studies examining the credit union industry because it is focused on whether credit unions are fulfilling their mission rather than looking at competitive imbalances in the financial services industry arising from the credit union tax exemption.

Small credit unions and those credit unions that continue to adhere to their social mission should pay careful attention to the findings of this study because many larger, profit-motivated credit unions are tarnishing the reputation of the industry.

The study found that credit union members are disproportionately comprised of middle- and upper-income households.

It also stated that some credit unions have engaged in risky and predatory lending practices harming vulnerable borrowers, despite the requirement to extend credit for provident and productive purposes.

The paper also held the industry's regulator, the National Credit Union Administration (NCUA), responsible for the industry's failure to fulfill their mission. The report noted that NCUA maintains no data on credit unions’ effectiveness at providing financial services to people of “small means.”

Furthermore, the study found NCUA's definition of “low-income” is far more expansive than that used by other federal agencies. As a result, these designated low-income credit unions simply replace community bank credit instead of providing new credit.

The report argued that credit unions have used their regulatory-arbitrage advantages to transform themselves from mission-driven financial service providers to for-profit financial institutions.

This lack of mission compliance -- the paper concluded -- has contributed to the deepening of inequality in the United States.

These troubling findings should be of interest to policymakers.

Read the report.

Wednesday, June 26, 2019

Iowa Credit Union to Buy Branches, Loans, and Deposits from First American Bank

GreenState Credit Union (North Liberty, IA) announced on June 25 that it will purchase seven First American Bank (Fort Dodge, IA) branch locations in central Iowa.

The acquisition, which includes the bank's Des Moines metro and Fort Dodge locations, includes approximately $200 million in loans and $500 million in deposits.

GreenState Credit Union was formerly known as University of Iowa Community Credit Union.

GreenState CU is the largest Iowa credit union with almost $5.4 billion in assets.

The transaction is subject to regulatory approval and is expected to close in the fourth quarter.

Earlier this year, First American Bank announced that it was selling its three branches and assets in Florida to MIDFLORIDA Credit Union (Lakeland, FL).

Read the press release.

Senator to NCUA: Proposed Delay of Risk-Based Capital Rule Is Unacceptable

Senator Sherrod Brown (D - OH) criticized the National Credit Union Administration for proposing to delay its risk-based capital rule for two years until January 1, 2022.

This is the second delay of the agency's risk-based capital rule. The risk-based capital rule was initially scheduled to go into effect on January 1, 2019.

In a statement, Senator Brown stated:

“I am disturbed that ten years after the financial crisis, the NCUA is once again delaying important rules to increase capital at large credit unions. I commend Board Member Harper for opposing this unnecessary extension and demanding that NCUA focus on strengthening supervision and identifying risks to credit unions.”

Read the press release.

Tuesday, June 25, 2019

Chartway FCU Buys Naming Rights to ODU Arena

Old Dominion University (ODU) and Chartway Federal Credit Union (Virginia Beach, VA) have signed a 10-year naming rights agreement for the 8,400-seat arena in the Ted Constant Convocation Center complex.

The arena will now be named Chartway Arena in recognition of the $4.25 million agreement. Chartway will also become the official credit union of ODU Athletics.

The agreement also establishes the Chartway-Constant Athletic Scholarship Fund. The fund will award a total of $25,000 in scholarships annually to student-athletes. The fund will continue each year throughout the contract.

Read the press release.

Monday, June 24, 2019

Bill Gives NY CUs Access to Bank Development District Program

The New York Assembly passed legislation (A.3320) allowing credit unions access to the state's Banking Development District Program.

Earlier, the Senate passed the same bill (S.727-A).

The Banking Development District Program was established in 1997 to encourage financial institutions to establish branches in underserved communities throughout New York. Institutions that are approved for a Banking Development District designation are eligible to receive up to $10 million in subsidized public deposits and other benefits, including below market-rate deposits from the state of New York.

The justification to expand the program to credit unions was due to the modest number of applications from banks and other financial institutions.

The bill awaits the signature of Governor Andrew Cuomo.

Read more.

Friday, June 21, 2019

Blinder: Does NCUA and the Federal Reserve Have Same Insight to Systemic Financial Risk?

In an op-ed in the Wall Street Journal, Alan Blinder, a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve, discusses flaws in the structure of the Financial Stability Oversight Council (FSOC).

The Dodd-Frank Act created FSOC. FSOC is a 10-member panel consisting mainly of the heads of the nation’s top financial regulatory agencies.

However, Blinder questions the design of FSOC.

For example, Blinder wrote:
"[Y]ou might question the FSOC’s voting structure: every agency gets one vote. So it gives equal weight to the chairmen of the Fed and the National Credit Union Administration. Do you think they have equal insight into systemic financial risk?"

Read the op-ed (subscription required).

Thursday, June 20, 2019

NCUA Board Proposes Delaying Risk-Based Capital Rule by Two-Years

The National Credit Union Administration Board on June 20th voted on a proposal to delay by two-years the implementation date of its risk-based capital rule until January 1, 2022.

Currently, the risk-based capital rule was scheduled to go into effect on January 1, 2020.

NCUA staff stated that the delay would not pose undue risk to the National Credit Union Share Insurance Fund.

Also, the delay would allow the NCUA Board to examine whether asset securitization should be accounted for by NCUA's capital standards; whether certain forms of subordinated debt should qualify as capital for risk-based capital purposes; and whether a community bank leverage ratio analog should be integrated into NCUA's capital standard.

NCUA Chairman Hood stated that he intends to bring forth a proposed rule allowing subordinated debt count towards a risk-based capital standard by the end of this year.

NCUA further stated that the delay would benefit credit unions by allowing them to allocate resources to implementing the Financial Accounting Standards Board current expected credit loss (CECL) standard.

Moreover, the time delay would allow NCUA to direct additional time and resources toward modernizing its examination systems.

Board member McWatters and Chairman Hood voted for the proposal.

Board member Harper dissented to delaying the risk-based capital rule and voted no on the proposal.

Read the proposed rule.

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