Keith Leggett
By Ray Birch
WASHINGTON—Many experts see the second risk-based capital proposal as being very similar to banks’ capital rules, something one analyst sees as taking a step closer to folding credit unions and banks under one regulator.
“I think the endpoint is for the RBC standard for CUs to closely align with bank standards. This is a further erosion of the differences between banks and credit unions,” said Keith Leggett, who recently retired as senior vice president and senior economist at the American Bankers Association.
Leggett previously told CUToday.info that the fight between credit unions and banks won’t go on forever, maybe not even for 20 more years.
“We will probably end up with convergence,” he said. “In 2008, when the Treasury issued its blueprint, part of the blueprint argues for all depository institutions to be subject to the same regulator. What you may find is an independent credit union regulator may ultimately disappear. Then, when you have a common regulator, they say have one common charter and the same tax treatment. This won’t happen overnight. Within the next decade you will see some discussion of this.”
Substantially Similar
Peter Duffy, managing director at Sandler O'Neill, New York, points to how close the CU rule now is to banks’.
“It’s substantially similar,” said Duffy, calling out the key differences. “It is kinder in its treatment of the ALLL and risk weights for auto loans. It’s the same for CUs on mortgages, until mortgages reach 35% of assets. It doesn’t provide for supplemental capital, but that’s a Congressional act anyway.”
Bill Hampel, CUNA
The reason the rule has to be considered in the context of banks, added Duffy, “Is because that is the trend of overall regulation, and this is due to the fact that larger credit unions are competing with banks for the same households with the same products. Standardization of regulation is a both competitive and safety and soundness issue.”
NAFCU SVP/General Counsel Carrie Hunt sees the second rule being closer to banks’, but in no way closely matching.
“Yes, in terms of the new risk weights, it is similar,” said Hunt. “And this is something NAFCU advocated for.”
Flawed Thinking
But Hunt sees the main—and significant—difference being the CU RBC rule falling under NCUA regulations and PCA guidelines.
But to say that credit unions now have similar capital rules as banks, and therefore credit unions and banks should move under one regulator is flawed thinking, said Hunt. “It is a much more complex issue than that.”
Bill Hampel agreed, saying that what marks the distinction between CUs and banks is not their capital structure.
“It’s our basic cooperative structure compared to banks’ investor-owned structure,” said the CUNA chief economist and chief policy officer. “There are so many other things that distinguish credit unions from banks that I don’t think the issue of whether or not credit unions should be treated like banks hangs on the issue of possible similarities in capital structure.”