ALEXANDRIA, Va.—By a 3-0 vote the NCUA board Thursday approved a final rule to raise the definition—and Regulatory Flexibility threshold—for small credit unions to $100 million.
NCUA earlier this year proposed raising the definition of a small credit union to $100 million from $50 million. Extending the threshold to $100 million provides reduced compliance requirements and exemptions in future rulemakings to 733 more credit unions, in addition to those 4,690 now with assets below $50 million.
Matz, recognizing how regulatory burden is impacting small credit unions, said the agency has steadily addressed the need to alleviate the compliance burden on small CUs.
“Today, we are fulfilling our commitment and proposing to double the threshold we adopted only two years ago,” said Matz, adding that in raising the definition of a small CU to $100 million, the Regulatory Flexibility Act threshold will be 10 times higher than when she became chairman. “And 100 times higher than when I first joined the NCUA board. More importantly, it will provide more than three out of four credit unions with special consideration for regulatory relief, due to their size and resource limitations.”
Data Supports $100 Million
Matz said that in today’s credit union system data shows that $100 million serves as a “logical proxy” for complex credit unions, and also $100 million meets the modern definition of small credit union.
Matz said that before deciding on the $100-million threshold, the agency considered each alternative suggested in comment letters, noting some comments asked for thresholds as high as $250-$550 million.
Matz said the board found those high thresholds would be difficult to justify with economic impact data, saying that key metrics indicate that these larger credit unions are performing much better than credit unions under $100 million.
“Just as compelling as the data were the small credit union officials I met with who urged us not to dilute our Regulatory Flexibility Act analysis by including almost every credit union in the United States,” Matz said. “I took those concerns seriously.”
Matz explained that a higher threshold of $250 million would redefine small to include 87% of all credit unions, and increasing the limit to $550 million would mean 93% of all credit unions would be considered small.
Matz pointed out that banking regulators are required to use $550 million as their threshold to define small banks. “However, that statutory requirement does not apply to credit unions,” said Matz. “A comparison of the banking and credit union systems makes it clear that it would not be appropriate for us to apply the same threshold that banking regulators use to define small in their much larger $14-trillion industry.”
Matz pointed out that banks under $550 million represent only 6% of all assets in the banking industry, but credit unions under $550 million account for 32% of all assets in the credit union system.
“If we choose the same threshold as the banking industry, we would create five times the asset exposure to the Share Insurance Fund,” Matz explained.
Higher Threshold Coming?
Board member Mark McWatters called the vote to increase the definition a “step in the right direction.”
“That said, I think it’s a lost opportunity not to expand the number above $100 million to $250 million or even $500 million. What am I saying this? Am I being ornery or picking an argument? No, not at all. If you have a $250-million credit union and a $250-million bank, they are competing in the same space. So small is small; let’s treat them the same way. If NCUA was suddenly consolidated into the FDIC, chances are the entire (CU) community with the exception of a handful would all be considered small entities. Think about where is the risk here? Is there really a huge amount of risk in this under-$50-million credit unions, absent fraud? I don’t see it. So philosophically I would support a continued increase in this rule over time, and maybe that’s the best way to do it.”
Matz emphasized that the new threshold will not limit regulatory relief to just credit unions under $100 million, noting that the board can provide higher rule exemption thresholds for credit unions of any asset size “when we determine that to be prudent. If we conclude a higher asset threshold is appropriate for certain rules, we can go beyond the Regulatory Flexibility Act analysis.”
Matz confirmed that the move will not tax the Office of Small Credit Union Initiatives (OSCUI).
“This will not strain the capacity of the OSCUI to provide free services,” said Matz. “In most areas, OSCUI has moved to digital services. The office will be able to add capacity without additional costs . . . By modernizing the definition of small, providing special consideration for regulatory relief and expanding access to free consulting, this final rule will ensure even more credit unions remain viable in the future. I am proud to support this historic change.”
NAFCU Backs Decision
NAFCU supports the threshold increase, but hopes NCUA can do more.
“We appreciate the NCUA board’s decision to increase the asset threshold for ‘small entity’ under the Regulatory Flexibility Act and committing to reevaluate the threshold every three years,” said NAFCU Director of Regulatory Affairs Alicia Nealon. “Ultimately, however, we believe that all credit unions deserve regulatory relief, as we continue to hear about significant compliance burdens felt by member credit unions exceeding the new threshold.”