July 24, 2020 NASCUS Report

THIS WEEK: ‘Exchange’ brings regulators, CU CEOs together; NCUA nominee cites his priorities … Ito: he’s on the right track; FOM rules, OTR methodology on NCUA agenda; Fed nominees advance; Bureau to examine cost-benefit in regs; TRANSITIONS: New director in AZ; Summit goes virtual (at no charge) Aug. 26; BRIEFLY: Agency names new CFO; a correction on next NCUA Board member’s term

Participants in the 2020 Exchange listen to NCUA Board Chairman Rodney Hood (bottom left) and NASCUS Regulator Board Director Steve Pleger (second row from top, second from left) discuss issues. Pleger is also senior deputy commissioner, Georgia Department of Banking and Finance

‘Exchange’ brings regulators together
with state, federal CU leadership

Credit union leaders from the largest institutions across the country sat down this week – via a video conference – to discuss key issues facing the state credit union system, and all credit unions, over two half days in an event sponsored by NASCUS.

NCUA Board Chairman Rodney Hood also participated in the NASCUS third annual Exchange, along with state regulators from across the country, NASCUS leaders and the credit union CEOs.

The invitation-only event was developed by NASCUS to foster a dialogue between state regulators and state and federally chartered credit unions – with assets of $10 billion or more — to examine emerging issues that may determine whether the credit union charter remains the charter of choice for both state and federal credit unions and to offer solutions.

During two half-day, virtual sessions, the leaders discussed an array of topics, including: diversity, equity and financial inclusion; mergers and acquisitions; accounting standards and troubled debt restructuring forbearance; auto lending; housing finance reform, and more.

“Our annual Exchange is solutions-oriented and this year’s gathering was particularly vital as regulators and credit unions are simultaneously navigating the uncertainty of the COVID-19 pandemic while preparing for the future of the financial services marketplace,” said NASCUS President and CEO Lucy Ito. “During our convening, system stakeholders openly addressed issues affecting credit unions and their members and offered ideas to strengthen the industry going forward.”

Participants included state regulators from Connecticut, Florida, Georgia, Illinois, North Carolina, Texas, and Washington as well as CEOs from Alliant, BECU, Navy Federal, Pentagon Federal, SchoolsFirst Federal, Star One, State Employees’ (NC), Suncoast and Vystar credit unions.

NASCUS Regulator Board Chairman John Kolhoff along with NASCUS’ Credit Union Advisory Council Chairman Rick Stipa (TruMark CU) and Vice Chairman Mike Williams (Colorado CU) also attended. In addition, representatives from the American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), CU Direct and NASCUS’ Lucy Ito and Executive Vice President and General Counsel Brian Knight also took part in the discussions.

In the brief video (click on the image to view), NCUA Board Nominee Kyle Hauptman outlines his ideas for a less-frequent exam cycle for well-managed credit unions before the Senate Banking Committee Tuesday.

NCUA nominee lists three priorities before panel

The nominee for a seat on the NCUA Board outlined his priorities in that role this week in a hearing before the Senate Banking Committee.

Kyle Hauptman told the committee that he will focus on managing the impact of the coronavirus crisis, expanding technology’s role in reaching the underserved, and aligning incentives to promote sound credit union performance.

He indicated that managing the financial impact of the coronavirus crisis may be the flip-flop of the financial calamity of a dozen years ago. “While the 2008 crisis began in the financial sector and then hit Main Street, our current crisis may be the reverse,” he said. “Credit unions were chartered to serve those of modest means, and I plan to work with them, the Board and Congress on solutions for those facing financial stress,” he stated.

Regarding technology, he told the senators that innovation can lead to more inclusive financial services. He said aligning incentives included a less-frequent exam cycle for credit unions that earn it through higher marks for safety and soundness.

Because his nomination hearing was held in tandem with two candidates for seats on the Securities and Exchange Commission (SEC) – who fielded most of the questions from senators during the nearly two-hour nomination hearing – he was able to make a number of points. Among other things, he:

  • Said he would do whatever possible to foster better products at lower prices and lower fees (in response to a question from Democratic Ranking Member Sherrod Brown (Ohio) in about the senator’s concern over rising fees at credit unions).
  • Indicated that his top priority is adequate levels of capital for credit unions. He also acknowledged that credit unions had achieved a very high capital position before the impact of the pandemic was felt and that “it’s times like this when capital matters most.”
  • Asserted that, should the current expected credit losses (CECL) accounting standard take effect in 2022, regulators must be sure to understand that any changes resulting to a credit union’s balance sheet from the standard do not mean that the credit union’s capital declined. He claimed that the accounting standard “just makes it appear” that the capital levels are worse than they really are.
  • Declared that blockchain or distributed ledger technology and practices would have been helpful in distributing stimulus checks earlier this year to 88 million Americans. He said that “digital money” could have “gotten money to those people immediately and securely with limits on fraud. Much the same way that there is a disaster in another country we can deliver money to those folks much more quickly and in a much safer manner.”
  • Vowed to find ways to charter more credit unions, adding that he wants to launch a “top to bottom review” of why it takes so long to start more credit unions. “What are the pain points,” he asked rhetorically.

Now an aide to Banking Committee Member Tom Cotton (R-Ark.), Hauptman cited his track record of working with Senators and their staffs from both parties, as well as his experience working at investment companies, as evidence of his qualification for a position on the NCUA Board. Cotton offered his staff member high praise – and Sen. Mark Warner (D-Va.) noted the nominee’s work with him on anti-money laundering statute reform.

But Ranking Member Brown had a cautionary word for the prospective regulator. “He says he wants this job because people who love their financial institution are usually credit union members,” Brown said in his opening statement. “But being glad that credit unions serve their customers isn’t a reason that he is qualified to be one of the three top credit union regulators, it means he should be a credit union customer.”

Ito: Hauptman right on capital, pandemic recovery

NASCUS President and CEO Lucy Ito said the state system appreciated Hauptman’s views with regard to the importance of capital at credit unions. In a press statement, Ito said NASCUS would “welcome the opportunity to collaborate with him and the other members of the NCUA Board as they consider a broader, more flexible Subordinated Capital rule that will both benefit credit unions and their members and protect the share insurance fund.”

She also said NASCUS valued the nominee’s comments about prioritizing the recovery from the COVID-19 pandemic. “We agree with the steps the current NCUA Board has taken to provide credit unions with the flexibility to serve their members during these unprecedented times,” she said. She added that the state system was encouraged that if Hauptman were confirmed, he would work with Chairman Hood, Board Member Harper and Congress to ensure credit unions will have access to the tools necessary to continue serve their members as they contend with the fallout of the pandemic.”

Board to consider membership rules, OTR methodology

One final and two proposed rules, as well as a request for comment on the methodologies for figuring the overhead transfer rate (OTR) and federal credit union operating fee will be considered by the NCUA Board at its meeting next Thursday.

The board will also hear a mid-year budget briefing.

The final rule deals with the agency’s chartering and field of membership regulations. Last fall, in the wake of a decision by a federal appeals court upholding its most recent field of membership rules update (from 2016), the board proposed changes to the membership rules with respect to applicants for a community charter approval, expansion, or conversion.

Specifically, the board said at that time, it proposed to re-adopt a provision to allow an applicant to designate a Combined Statistical Area (CSA), or an individual, contiguous portion thereof, as a well-defined local community (WDLC), provided that the chosen area has a population of 2.5 million or less.

Earlier this month, the U.S. Supreme Court declined to take up an appeal of the lower court’s decision on the agency’s membership rules, opening the door for the agency to act.

Other items on the board agenda include:

  • A proposed rule on the transition to the new current expected credit loss (CECL) methodology under a new accounting standard set to take effect in 2022;
  • A request for comment on how the agency figures the OTR (the amount of money transferred from the National Credit Union Share Insurance Fund (NCUSIF) to fund “insurance-related” costs of the agency) and operating fees paid by federal credit unions. Regarding the OTR, NASCUS has urged that the agency provide better transparency about the Overhead Transfer Rate (OTR), consistency in distributing the OTR among credit unions, and the cost allocation of NCUA’s supervision of credit union service organizations (CUSOs) and third parties.
  • A proposed rule on fees paid by federal credit unions (such as the annual operating fee, which assists in funding the agency’s operations);
  • A mid-year review of the agency’s 2020 budget, including any proposed adjustments.

The meeting is scheduled to get underway 10 a.m. ET; it is scheduled to be live-streamed via the Internet.

Board Agenda for the July 30, 2020 Meeting

Fed nominees advance to full Senate for consideration

Nominees for two seats on the Federal Reserve Board were recommended for confirmation by a Senate panel Tuesday, but only after sharp and conflicting comments by the two leaders of the committee from both political parties over one of the candidates.

The nomination of Judy Shelton as a central bank governor was recommended to the full Senate for confirmation on a 13-12, strictly party-line vote. (Another nominee, Christopher Waller, was recommended for approval on a vote of 18-7).

Shelton’s nomination has become divisive politically, with Republicans vowing to support the nominee of President Donald Trump, and Democrats vowing to defeat her based on past comments about reinstituting the gold standard, questioning the effectiveness of federal deposit insurance and the Fed’s independence from political influence. In fact, Democrats on the committee sent a letter to Committee Chairman Mike Crapo (R-Idaho) earlier this month asking the chairman to hold another hearing with Shelton, to answer a series of questions about her views in the wake of the financial impact of the coronavirus crisis. Crapo declined to schedule a hearing.

In his opening statement in support of Shelton, Committee Chairman Crapo said essentially that Shelton had either walked back or disavowed past comments that have raised Democrats’ ire. “I’m confident that her deep understanding of the Fed’s monetary policy toolkit, monetary history and commitment to maintaining Fed independence will serve the Fed well in its ongoing efforts to stabilize markets and toward its mission of price stability and full employment,” he said.

He noted that the previous nominees to the Fed board by Trump have demonstrated their own commitment to the Fed’s independence and its mission. “And I have no doubt that Dr. Shelton and Dr. Waller will do the same,” he said.

Democratic Ranking Member Sherrod Brown (D-Ohio) was less amenable to Shelton’s nomination. “Dr. Shelton doesn’t believe in an independent Fed; our economic crisis would be even worse if she were sitting on the board today,” Brown asserted. “She wants to bring back the gold standard and get rid of deposit insurance, in spite of what she says when questioned at the last minute by the chair of the committee. Our country’s tried that before – we know how it’s turned out. Just look to the Great Depression and think how much worse the 2007-2008 financial crisis would have been when hundreds of banks failed.”

He also charged that Shelton has flipped-flopped on a number of positions (such as on monetary policy and tariffs) only to match the positions of Trump, alleging she did so just to win and keep Trump’s favor.

The nominations of both Shelton and Waller now move to the full Senate for consideration.

Bureau symposium looks at cost-benefit analysis

The use of cost-benefit analysis in consumer financial protection regulation – under consideration by the CFPB — is the focus of a symposium set for next Wednesday (July 29) via webcast, the agency said this week.

In a release, the bureau indicated that the event – which gets underway at 9:30 a.m. – is part of the agency’s effort to consider how to employ cost-benefit analysis applied to regulations it advances. The agency said the symposium would look at “developments in the cost-benefit analysis arena” and that the agency would also consider “lessons that may be useful as it nears the start of its second decade of work.”

Two panel discussions will be held during the event, the bureau said. The first will discuss how the agency should use cost-benefit analysis in developing consumer financial regulations. It will also consider, the CFPB said, whether the agency’s practices “provide the proper incentives for the best use and reporting of cost-benefit analysis.”

The second panel will discuss the methodology of cost-benefit analysis for consumer financial regulation. “The panel may also consider the data and economic models that should be developed for cost-benefit analysis of consumer financial regulation, how to address distributional concerns, and how to partner with others in this work,” the bureau said.

CFPB Director Kathleen Kraninger also plans to address the symposium.

CFPB to Host Symposium July 29

TRANSITIONS: AZ names Daniels director

Evan Daniels is the new director of the Arizona Department of Insurance and Financial Institutions, which has oversight of the state’s credit unions among its duties. Daniels’ appointment was announced July 10 by Gov. Doug Ducey. Most recently the unit chief counsel of the technology, innovation and privacy unit in the state attorney general’s office, he replaced Keith Schraad who departed in February. Christina Corieri, the governor’s senior policy advisor, filled the post as interim director since then. During his stint in the AG’s office (which began in 2015), Daniels led oversight of Arizona’s regulatory “sandbox” for fintech following the passage of legislation in 2018. According to a press release from the governor’s office, the program enabled startups and entrepreneurs to launch financial services products on a limited, temporary scale in Arizona “without incurring the regulatory costs and burdens that otherwise would be imposed while ensuring customer protection.” Daniels earned his B.A. from Arizona State University, an MA from Norwich University, and a JD from the University of Tennessee College of Law.

Governor Ducey Announces Evan Daniels As Director of The Arizona Department of Insurance And Financial Institutions

In spite of virus, no-charge Summit goes virtual Aug. 26

A virtual version of the NASCUS 2020 State System Summit will be offered Aug. 26, beginning at 10 a.m. ET – at no charge – the association announced this week.

The three-hour session will not only offer timely educational content but also an opportunity for state system stakeholders to gather in one place – virtually, via the Internet – to consider the key issues facing state-chartered credit unions.

The event is being held in lieu of the Aug. 11-14 Summit, originally scheduled for New York City. The rising rate of COVID-19 cases around the country prompted NASCUS to convert the meeting from the distinctive in-person event to one celebrated on-line.

“While we are disappointed that we will be unable to convene credit union regulators and practitioners in-person for the annual State System Summit, the virtual Summit will provide the state system with the opportunity to connect and learn without sacrificing the personal health and safety of participants,” NASCUS’ Ito said.

Among other things, the virtual Summit will feature the NASCUS Annual Meeting and a session presented by long-time credit union analysts and leaders John Lass and C. Alan Peppers. That event will provide attendees with tools to plan for the future despite the uncertain impact of the COVID-19 pandemic.

NASCUS State System Summit — Virtual (Aug. 26, 10 a.m. – 1 p.m. ET); registration, more (no charge)

BRIEFLY: NCUA taps veteran official as CFO; CORRECTION: Term for next board member runs to August, 2025

Eugene H. Schied has been named chief financial officer (CFO) by NCUA, succeeding Rendell Jones, who became the agency’s deputy executive director in January, the agency said this week. A former deputy CFO and acting CFO, the latter occurring when Jones took his new post, he joined the agency in 2017. Before that, he held executive positions at several federal agencies, including as assistant commissioner for administration at U.S. Customs and Border Protection; budget director and deputy CFO at the Department of Homeland Security; deputy assistant attorney general/controller at the Department of Justice; and CFO at the Drug Enforcement Administration. He was awarded the Presidential Rank Medal for Meritorious Service in 2006, NCUA said. He holds a Master of Public Administration degree from the Ohio State University and a BA in political science from the University of Iowa … CORRECTION: Last week’s NASCUS Reportincorrectly stated that the term for the next member of the NCUA Board (the term nominee Kyle Hauptman hopes to fill) would end in August, 2024. The correct timing is August, 2025.

NCUA Selects Schied As Its New Chief Financial Officer


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