WASHINGTON - Dissatisfied with a regulatory relief measure that encompasses all depository institutions and their affiliates, the credit union industry has broken away from the pack and crafted a bill of its own.
The credit-union-only bill, introduced Nov. 21 in the House, incorporates much of what is in the regulatory-relief bill first proposed in March.
But it addresses two issues that the original legislation does not: It would increase the congressionally mandated cap on the size of a credit union's business loan portfolios to 20% of its total assets (it is now 12.25%) and create a risk-based method to measure credit unions' capital.
The Credit Union Regulatory Improvement Act's sponsors are Rep. Paul Kanjorski, D-Pa., and Rep. Ed Royce, R-Calif. It is doubtful the bill will get much attention in Congress before the year is out, but its introduction tees it up for debate in early 2004 and sets the stage for another confrontation with the banking industry, which has vowed to fight any further attempts to increase credit unions' business lending.
In September the industry's regulator, the National Credit Union Administration, overhauled its rules to let credit unions make unsecured commercial loans and increase the loan-to-value ratio on loans for heavy business equipment such as trucks and tractors to 100%, from 80%.
Still seething over the NCUA's action, community bankers savaged the latest bill. They say it represents another step in credit unions' effort to do away with the limits on their commercial lending authority that Congress put in place in the Credit Union Member Access Act of 1998. (That law established the 12.25% cap on credit unions' business loan portfolios.)
"I'm not surprised to hear that they've sought a bill that would increase the cap," said Bradley E. Rock, the chairman, president, and chief executive officer of the $530 million-asset Smithtown Bancorp in Smithtown, N.Y.
"Credit unions have been quite unabashed at wanting to have all their cake and eat it, too," Mr. Rock said. "They've made it plain that they want to have all the powers banks have without any of the constraints that the government imposed in the 1940s in return for their tax exemption."
Howard T. Boyle 2d, the president of the $107 million-asset Home Savings Bank in Kent, Ohio, said that community banks are finding it increasingly difficult to go up against tax-exempt credit unions and that the situation that would only worsen if they were allowed to make more business loans.
"We can't compete if they don't have to pay taxes," Mr. Boyle said. "It's getting to the point where somebody in Congress is going to have to wake up and take notice."
Credit union officials characterized the cap increase and a related provision - one to raise the threshold that defines a member business loan to $100,000 from the current $50,000 - as a compromise measure, not a power grab.
"We'd like to see the cap gone entirely," said Fred R. Becker Jr., the president and CEO of the National Association of Federal Credit Unions. "Absent that, raising the cap to 20% would help, as would increasing the threshold to $100,000."
Mr. Becker called the Credit Union Regulatory Improvement Act "a superb first start" and said his group's board of directors would probably endorse it.
The Credit Union National Association has also declared its "strong support" for the bill. Gary Kohn, its vice president of legislative affairs and senior legislative counsel, said Reps. Royce and Kanjorski began drafting it several months ago, after it became clear that the original regulatory-relief bill would sidestep member-business-lending and capital issues.
"It was at that point that the need for this bill was conceived," Mr. Kohn said.
The broader regulatory-relief bill has passed the House Financial Services and Judiciary committees. Its dozens of provisions include sections that would mean fewer regulatory examinations of well-run institutions and a shorter government-mandated waiting period between the approval of an acquisition and the date it is allowed to close. It is now 15 days and would be cut to five.
But that bill has been stalled by a dispute over a clause that would give industrial loan companies more interstate branching powers.
The credit-union-only bill would also result in far-reaching changes regarding capital.
J. Kirk Cuevas, the chief of staff and counsel to National Credit Union Administration chairman Dennis Dollar, said the capital provisions of the Credit Union Regulatory Improvement Act are essentially identical to a proposal Mr. Dollar made last year.
Like Mr. Dollar's plan, the credit union bill would authorize the NCUA to create a system of risk-weighted assets - much like the one banks use - to calculate an institution's capital ratio. In this calculation, an institution's net worth would be divided by an asset figure that excluded the safest assets, such as cash on hand or monies deposited with in the NCUA's share insurance fund.
Reducing the assets used in the equation has the effect of increasing the capital ratio. Currently a credit union's capital ratio is calculated by dividing its net worth by its total assets.
Perhaps choosing its battles carefully, the banking industry is not challenging the capital provision.
But despite bankers' apparent willingness to go along with credit unions in the wider regulatory-relief bill, they are up in arms that a measure solely for credit unions was introduced in the first place.
Credit unions "are trying to circumvent the process and intimidate Congress," said Ronald K. Ence, director of legislative affairs at the Independent Community Bankers of America.
There is also a growing belief that credit unions may be overreaching and that their push for expanded business lending authority might prompt Congress to review the industry's tax exemption.
"It seems to me that many of these institutions have outgrown their tax exemption," Smithtown Bancorp's Mr. Rock said. "There are 82 credit unions with more than $1 billion of assets, and it is becoming abundantly clear that a billion-plus institution ought to pay taxes."
Added Home Savings' Mr. Boyle, "It looks to me like if they get everything they want, they may end up losing much more."
Neither Rep. Royce nor Rep. Kanjorski returned calls seeking comment.
