ALEXANDRIA, Va.–In its 2015 annual report, the Financial Stability Oversight Council has included a recommendation that NCUA and the Federal Housing Finance Agency be given authority to supervise third-party service providers that do business with CUs.
NAFCU said the FSOC recommendation is “another layer of regulation” that is costly and unnecessary.
The report also includes recommendations related to cybersecurity, interest rate risk, and ALM. NCUA Board Chairman Debbie Matz is one of the 10 voting members of the Council, which also includes the Secretary of the Treasury, the Federal Reserve chairman, the Comptroller of the Currency, the directors/chairs of the CFPB, SEC, FDIC, CFTC, FHFA and an independent member with insurance expertise. The FSOC is charged with identifying risks and responding to emerging threats to financial stability, and has certain authorities to constrain excessive risk in the financial system.
“I am extremely pleased that the Council recommends the granting of examination and enforcement powers to NCUA and Federal Housing Finance Agency to oversee third-party service providers engaged respectively with credit unions and the government-sponsored enterprises,” said Matz in a statement. “I view NCUA’s inability to examine critical credit union service providers as a significant regulatory gap.
“The Council also identifies the threat posed by increased risk-taking in the current low-yield environment,” Matz continued. “Over the course of the last several years, many credit unions have increased their exposure to fixed-rate real estate, and more recently they have dramatically lengthened the tenor of their investments. These changes have exacerbated exposure to interest-rate movements. The Council recommends that supervisors, regulators and firm management continue to closely monitor and assess the heightened risks resulting from continued search-for-yield behaviors as well as the risks from potential severe interest-rate shocks. This is a high-priority area for NCUA, and over the past year we have seen meaningful decreases in long-term asset holdings as credit unions have reduced exposure to long-term investments.”
NAFCU’s Carrie Hunt, SVP-government affairs and general counsel, responded to the FSOC recommendation by saying, “Given that the Financial Stability Oversight Council is a regulatory body, the suggestion of this added layer of regulation is not surprising. We continue to view third-party vendor examination authority for NCUA as a costly proposition and unnecessary for credit union industry safety and soundness, and we will continue to weigh in with lawmakers to urge against it. While NAFCU acknowledges the importance of cybersecurity and risk management, we firmly believe that cybersecurity and third-party vendor examination authority do not go hand in hand.”