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NCUA Reg Flex: Not as Flexible as It Once Was

Many credit unions feel the reeling back of Reg Flex comes at a bad time.

By Roy W. Urrico

The question facing credit unions is whether encroaching regulatory rules are too-little-too late, or simply too much.

Last fall, the NCUA Board, under pressure to act following increasing losses to the insurance fund, reined in its 8-year-old deregulatory program, better known as Regulatory Flexibility or Reg Flex, in spite of the efforts of CUNA, NAFCU and many individual credit unions. NCUA said revising certain provisions of RegFlex was “to enhance safety and soundness for credit unions.” Those provisions related to fixed assets, member business loans (MBL), stress testing of investments, and discretionary control of investments.

Under the new regulations every credit union must once again attain a personal guarantee on all member business loans, receive regulatory authorization to surpass NCUA’s limit of 5 percent fixed assets, receive NCUA approval to assign discretionary control of their investments, and stress test all investments. Because of the modification, credit unions over the 5 percent level can stay where they are. However, if their fixed assets drop, they must remain at the new level. They can request a waiver allowance to buy more fixed  assets.

It is clear that the NCUA reacted specifically to the number of credit unions that defaulted or were in default danger. The change took place less than a month after the NCUA provided billions of dollars to shore up three wholesale credit unions collapsing under the weight of damaging mortgage
investments. The agency took over those three corporate credit unions on Sept. 24, 2010. Corporate credit unions provide wholesale financing and investment services for the more than 7,000 U.S. credit unions. They took on more risk than permitted for individual credit unions.

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