WASHINGTON (2/2/12)--The Financial Institution Examination Fairness and Reform Act (H.R. 3461) is "a firm step in the right direction toward ensuring the federal financial institution regulatory agencies conduct fair exams, which are consistent with the law and regulation and ensure safety and soundness," West Virginia Credit Union League President/CEO Ken Watts said during a Wednesday House hearing. He was testifying on behalf of the Credit Union National Association (CUNA).
West Virginia Credit Union League President/CEO Ken Watts (left) and NCUA Executive Director David Marquis (right) presented differing views during Wednesday's House subcommittee hearing on a bill intended to reform the federal financial institution examination process. (CUNA Photo)
The hearing featured two witness panels: One was comprised of Watts and other financial industry representatives who supported examinations reforms, and the other was comprised of federal financial institutions regulators, such as National Credit Union Administration (NCUA) Executive Director David Marquis, who did not support the bill as written.
The exam bill that was under scrutiny by the House Financial Services subcommittee on financial institutions would allow credit unions and other institutions to discuss examination concerns with a newly created Federal Financial Institution Examination Council (FFIEC) ombudsman, and to appeal regulator decisions before an independent administrative law judge.
The bill would also give credit unions and other financial institutions access to decision-making information gathered in their exams and codify exam policy guidance for financial regulators.
Watts said H.R. 3461 would not solve all of the examiner issues that credit unions face, but added the attention that the U.S. Congress gives to examination issues "will lead the NCUA and the other regulators to take steps to ensure that examiners treat credit unions fairly and that they acknowledge credit unions should have the flexibility to manage risk, consistent with legal and supervisory requirements."
Watts said that credit unions often do not voice their concerns related to the examination process due to the fear of retaliation from regulators. However, he added, the proposed creation of a third-party regulatory appeals process would create a "much improved" examination process for credit unions.
H.R. 3461 could be further strengthened, Watts said, by such additions as easing institutions' access to information that regulators use to make their material supervisory determinations and revising some exam standards.
He also recommended that the subcommittee add language to the bill that would direct regulators to identify additional costs associated with implementing H.R. 3461, and reduce their expenditures elsewhere within their budgets by the same amount.
Total implementation costs should also be divided between all financial industry regulators on a pro-rata basis so the NCUA, and, in turn, credit unions, do not pay for costs incurred by other regulators, he added. Legislators should also revise portions of the bill to better address the structural differences between credit unions and other institutions, Watts said.
Marquis testified that his agency recognizes that its examination process "can be improved and enhanced," but he warned that the bill could increase administrative costs, create new risks to the National Credit Union Share Insurance Fund, and impose "a one-size-fits-all approach" to financial institution examinations.
Marquis noted that the NCUA has already adopted a number of examination practices that fall in line with H.R. 3461, and said the NCUA is "committed to addressing legitimate concerns about the present exam process, minimizing regulatory conflicts, promoting procedural fairness, and advancing exam consistency."
Many of the legislators in attendance noted the need for regulatory examination improvements, with Rep. Ruben Hinojosa (D-Texas) saying that credit unions did not cause the financial crisis, and should not be stifled by overzealous regulators.
Other legislators, including Reps. Blaine Luetkemeyer (R-Mo.), Mel Watt (D-N.C.) and Don Manzullo (R-Ill.), called for reduced regulatory burdens for credit unions and other institutions.
H.R. 3461 is co-sponsored by the subcommittee chair, Rep. Shelly Moore Capito (R-W. Va.), and its ranking member, Rep. Carolyn Maloney (D-N.Y.) The bill has 77 co-sponsors.
JetStream FCU President/CEO Jeanne Kucey also testified, representing the National Association of Federal Credit Unions.
For more on Wednesday's hearing, use the resource link.