By Ray Birch
ROYAL OAK, Mich.—NCUA’s new proposed rule related to credit union acquisitions of banks should not impact the future of these deals, says Michael Bell, who emphasizes it’s time to “put on paper” the process for completing these transactions.
Bell, who pioneered credit union acquisitions of banks leading to the completion of more than 30 to date, also recommended NCUA make a small addition to its proposal.
As CUToday.info reported, the NCUA board last month put out for comment a proposed rule related to credit union acquisitions of banks with a focus on clarifying the process.
Formally known as Subpart D within Part 708a to establish requirements related to transactions where a FICU proposes to assume liabilities from an institution other than a credit union, the proposed rule seeks to “clarify and make transparent the procedures and requirements currently in place related to combination transactions,” NCUA said.
NCUA said it defines combination transactions as those where a federally insured credit union (FICU) proposes to assume liabilities from a non-credit union, including a bank. They also include a FICU’s merger or consolidation with a non-credit union entity. The new proposal also seeks to clarify the scope of section 741.8 of the NCUA’s regulations, which currently requires the NCUA to grant approval before a FICU may purchase loans or assume an assignment of deposits, shares, or liabilities from any institution that is not insured by the NCUSIF.
On Square Footing With Banks
Bell, an attorney with Royal-Oak Mich.-based Howard & Howard, said if he was asked to make a comment on a way to improve the proposal it would be to address requiring a timeframe for NCUA to review a deal and get back with an answer. Bell said such an addition would place credit unions on square footing with bank offers.
“I think there's one thing missing that would make proposed rule, which is fair, ideal,” Bell told CUToday.info. “For these transactions, on the bank side, the FDIC has a required timeframe for which the agency must act when a bank submits their application to be acquired by a credit union. We don’t have such a timeframe with NCUA, and the proposal does not include one.
“I think for fairness, and to be on a level playing field with bank bidders, it would only make sense for NCUA to mirror the FDIC procedure and have a set timeframe—which is 45 days if expedited, 60 days if not expedited—for the application to be considered,” continued Bell, who added approval on the CU side generally ranges from 60-90 days, or longer. “Other than that, I think this proposal is excellent.”
Bell added he does not believe the proposal will impact banks selling to CUs and CU interest in buying a bank. According to documents provided during NCUA’s January board meeting, the agency currently has nine transactions pending that include all of a non-FICU’s assets and liabilities, and has eight pending transactions that include part of a non-FICU’s assets and liabilities.
Michael Bell
‘A Fair Aggregation’
“I don’t think the proposed rule will have a negative effect on these transactions, nor will it have a positive effect,” said Bell. “The rule is simply a fair aggregation of what we've been doing since these agreements started,” said Bell. “The market controls the number of these transactions, which is a good thing. This rule doesn’t affect that and we should continue to stay out of the way.”
Credit unions first began buying banks in 2011 when Michigan's United FCU acquired $81-million Griffith Savings Bank in Indiana.
Bell said in the last nine years the process for a credit union acquiring a bank has been fine-tuned.
“NCUA is putting down on paper what has been appropriately developed over many years,” said Bell. “In working with the agency over that period, this process has evolved and we are at a very good point with it now. The process has been completed and the rule just puts things down for all the world to see. There's no secrecy here. It lets everybody know what we're going to do and how we're going to handle these transactions.”
No Material Shift Expected
Bell reiterated his position the proposal will not lead to a material shift in the number of credit unions buying banks.
“I don’t think this will bring someone off the sideline who may have been considering a bank purchase nor will it sideline someone who was making that same consideration,” said Bell.
Will the proposal draw the attention of bankers? Bell said that’s possible.
“I have not yet seen any reaction from bankers on NCUA’s proposal,” said Bell last week. “And I don’t know why they might see this as a negative for banks, from a factual perspective. But politically, you never know.”