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Seeing RBC2 as unwise & unneeded, credit unions follow cooperative principle of voting
With deadline a week off, NCUA receives 1,300+ comment letters from member-owners
WASHINGTON, DC (April 22, 2015) — Through April 20, some 1,330 credit union members, volunteer leaders and staff professionals have submitted coimments toi NCUA on the second round of the proposed risk-based capital regulation (RBC2).Most are expressing concerns that the new rule would cause more harm than good. The deadline for responding is Monday, April 27.
“We’re finally seeing a spike in the letters being sent to the regulators as we get closer to what NCUA Board Member Metsger recently said is a done deal that likely won’t include any ‘significant material changes to the first proposal’,” said Randy Karnes, President/CEO of CU*Answers. “I wonder if more letters are pouring in because the industry is just awakening to how bad RBC2 is for credit unions. Or could it be they just don’t like being taken for granted by those (Ms. Matz) pushing their agenda on an industry that is supposed to have a cooperative tone in everything it does?
“Not cooperative meaning, ‘nice and agreeable,’ but cooperative as in ‘we respect the value of customer-owners and their concerns as we craft good regulations and tools for success’,” Karnes continued. “RBC2 will hurt the ability for members – American consumers – to own and prosper as non-profit, cooperative financial-service entrepreneurs.”
To facilitate submitting comments, a number of credit unions and support organizations have been offering easy ways for the credit union community to provide their comments to NCUA, including NACUSO, CU*Answers, CU Voices, NACUSO, CUNA and others.
Karnes believes the proposed rule is poorly crafted and is being pushed through for the wrong reasons.
“This is more about the will of some misguided, legacy-seeking regulators than an agency concerned with ensuring the safety and soundness of those it serves – yes, serves! For when you destroy ownership values in a cooperative you hurt the very consumers that the fund is designed to protect,” he said.
It’s well accepted that credit unions fared better than for-profit banks during the financial crisis, even though federal banking institutions had been subject to risk-based capital regulation for years.
“The years before the financial crisis seem to have been a wash, with [banks and credit unions] failing at about the same low rate,” wrote Matt Cropp for The Motley Fool, Nov. 22, 2011. “When the financial crisis hit, however, the story changed. In 2008, the rate of commercial bank failures was almost triple that of credit unions (0.60% to 0.23%), and that increased to almost five times the credit union rate in 2010 (1.86% to 0.40%).”
Regarding mortgage lending, Jason Gold, director of global government and public policy for McGraw Hill Financial and an adjunct professor at Georgetown University, wrote this in U.S. News & World Report, Sept. 17, 2013: “In 2009, credit unions saw their delinquency for mortgage loans peak at 1.61 percent compared to 8.86 percent at the banks. Since 2009, credit unions’ share of first mortgages has actually increased as a percentage of total loans by 3.3 percent. Those are some pretty eye-popping statistics considering the severity of the crisis.”
Karnes and other sponsors of CU Voices are asking, “Is this good public policy?” That’s the key question for member-owners as they “cast their votes” by submitting comment letters on RBC2. And that voting aspect of submitting comment letters is at the heart of credit unions’ cooperative design.
And it’s that cooperative design that has allowed credit unions to thrive in the aftermath of the financial crisis, argues a report before a 2010 Harvard Business School faculty conference, “Too Legit to Quit?: Banks vs. Credit Unions after the Financial Crisis:”
“While credit unions provide financial services, they abide by an institutional logic of creating value for the community, rather than solely maximizing profits. Banks, on the other hand, operate under an institutional logic of maximizing profits. We argue that in the aftermath of the financial crisis, this key distinction with banks allowed credit unions to enhance their appeal to consumers in certain regions of the U.S.” [Emphasis added.] (Negro, Hannan, & Rao, 2010)*
To view comments and learn more about the proposed risk-based capital rule, submit comments or review those of others, visit www.creditunionvoices.com. The deadline for submitting letters is Monday, April 27, 2015. The attached chart shows the jump in comment letters submitted over the past several weeks.
* Aaron K. Chatterji, Fuqua School of Business, Duke University; Jiao Luo, Carlson School of Management, University of Minnesota; and Robert C. Seamans, Stern School of Business, New York University.
About Credit Union Voices
Credit Union Voices is an alliance comprised of credit union organizations that are bringing attention to critical issues affecting the industry. Their mission is to provide information and education that encourage the credit union community to speak up on behalf of the 100 million-plus people who rely on their credit unions for financial services and support.