Johnson Focuses NCUA’s Agenda
Toward Regulatory Flexibility
RegFlex, Field of Membership and Low-Income Credit Union Plans Outlined
Washington, D.C., April 20, 2005 – Safe and sound credit unions that are well-capitalized, well-managed institutions deserve greater regulatory flexibility, National Credit Union Administration (NCUA) Chairman JoAnn Johnson told Texas credit union officials in Washington last evening.
Chairman Johnson outlined her plans for enhancing the agency’s RegFlex initiative and assisting low-income designated credit unions with secondary capital issues, and she reiterated resolute support for the agency’s updated, modernized field of membership regulations.
The Chairman said she plans to soon move forward on lowering from 9 to 7 percent the RegFlex qualifying net worth ratio for well-managed, well-capitalized natural person credit unions.
"We have more than two years experience with RegFlex, and the structure is thoroughly implemented within the agency and the examination process. It’s time to provide flexibility for well-capitalized credit unions with 7 percent net worth," said Chairman Johnson, who convened a credit union capital summit last year to explore alternatives. "The capital summit brought a number of relevant matters to the forefront, and I look forward to moving forward soon on these issues," she said.
Johnson noted the agency is finalizing draft rule changes for presentation to the NCUA Board in the near future.
"If we agree that 7 percent leverage is an unnecessarily high ratio for "well capitalized" status under a system of risk-based prompt corrective action, then we should not set a higher bar for RegFlex," the chairman said. "The added risk of RegFlex activities is not
significant in a properly-managed, well-supervised credit union, and setting the bar at 9 percent causes credit unions to manage to an even higher ratio."
In addition to enhancing the RegFlex rule, Chairman Johnson proposes to allow well-managed, highly-rated low-income designated credit unions to have the option of releasing the portion of secondary capital account that no longer counts as net worth.
"Once these funds no longer count as net worth, the funds remain on the credit union’s books as an asset drawing down the credit union’s overall net worth ratio," she explained.
Also, Chairman Johnson commented that field of membership issues have never been more critical for federal credit unions than in today’s ever-changing financial marketplace. "Diversification and membership growth opportunities are necessary for maintaining the safety and soundness of credit unions," she said.
The Chairman made clear that NCUA will evaluate field of membership applications to serve a community, an underserved area, or a TIP (trade, industry, profession) on each applications merits. "I will not waver on the flexibility established in field of membership rules that are consistent with the ‘Federal Credit Union Act,’" she said.
"It is not productive for us to encourage credit unions to adopt underserved areas on one hand, and on the other provide regulatory hurdles. However, I am pleased with the streamlined process in reviewing applications, and I believe that going forward we cannot rest on our laurels. We must continuously strive to enhance the process so not to deter credit unions from serving the ‘unbanked’ or underserved," Chairman Johnson said. "Likewise, we are not here to micro-manage a credit union’s marketing plan; but we are here to make sure applications meet regulatory criteria in a safe, sound manner. I support modernizing rules and will continue to encourage flexibility within the bounds of law and regulations."
President George W. Bush designated JoAnn Johnson as Chairman of the National Credit Union Administration May 1, 2004. The President appointed Chairman Johnson to a seat on the NCUA Board in 2002. A former teacher, Chairman Johnson was elected to the Iowa Senate in 1994 and served as Chair of the Senate Ways and Means Committee and the Commerce Committee.
The National Credit Union Administration is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, also operates and manages the National Credit Union Share Insurance Fund (NCUSIF), insuring the deposits of over 83 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.
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