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June 6, 2008 - State and federal regulators appeared before the Senate Banking, Housing and Urban Affairs Committee on June 5 to continue examining the supervisory and regulatory effectiveness of the financial services industry during this time of economic turmoil.
National Credit Union Administration (NCUA) Chairman JoAnn Johnson testified at the hearing along with Tim Karsky, commissioner of the North Dakota Department of Financial Institutions, a NASCUS member and Chairman of the Conference of State Bank Supervisors (CSBS). He testified on behalf of CSBS.
Chairman of the Senate Committee on Banking, Housing and Urban Affairs Christopher Dodd (D-Conn.) began the hearing by saying the Committee wants to understand concrete steps that have been taken to show lessons learned during the current economic turmoil.
Karksy stated that the diversity of financial institutions has been valuable in responding to the housing and capital markets crisis and the ongoing economic downturn. “If we are to look for ‘lessons learned’ from the ongoing housing and capital markets crisis and the ongoing economic downturn, I believe that ‘strength through diversity’ should be at the top of the list. ‘Diversity’ does not just refer to variation within an institution’s lending portfolio or lines of business, but also diversity in the number of institutions.”
Further, Chairman Johnson reassured the Committee about the state of credit unions from the onset of her testimony. “Despite the continued downturn in the credit markets, and the resultant effect on the mortgage industry and now the broader economy, the federally insured credit union industry continues to be financially strong and vibrant,” she said.
She reported that net worth of federally insured credit unions increased during the first three months of 2008 to $87.7 billion, representing a new high dollar level for credit unions. “The overwhelming majority of federally insured credit unions remain well capitalized despite a slight dilution in the net worth ratio,” she said. The dilution was from asset growth exceeding capital growth during the first three months of the year, she continued. “As of March 31, 2008, 99.09 percent of federally insured credit unions were at least “adequately capitalized” or better, with 98.3 percent of all federally insured credit unions “well capitalized.”
When discussing mortgage lending in federally insured credit unions, Chairman Johnson testified that federally insured credit unions originated only 3.26 percent or $18 billion first mortgage loans, representing 6.82 percent of mortgage loans outstanding in all federally insured depository institutions. Data collected on “interest-only” or “payment option” mortgages suggest they are offered only in a small number of federally insured credit unions and comprise a very small portion of the total mortgage portfolio.
Senator Wayne Allard (R, Colo.) asked the panel about the Treasury’s
Blueprint for a Modernized Financial Regulatory Structure, a proposed reorganization of the regulatory system that would consolidate the state and federal regulatory systems and combine the NCUA with other federal agencies. “Again, from our perspective, our strength comes from our diversity,” stated Karsky’s testimony. “I would caution that legislative and regulatory decisions that alter our financial regulatory structure or financial incentives should be carefully considered against how those decisions affect the competitive landscape for institutions of all sizes.”
NASCUS agrees with Karsky and thinks the dual chartering system is threatened by the preemption of state laws and the push for uniformity as proposed in the Treasury’s blueprint. Chairman Johnson also weighed in on the blueprint at the hearing.
“I believe there is strong evidence that there’s a need for an independent regulator for credit unions because of nuances of differences between for non profit cooperatives and the banking sector,” remarked Chairman Johnson. “The success we’ve had during this turbulent time can support that.”
Other witnesses on the panel included Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation; John C. Dugan, Comptroller of the Currency, United States Treasury; John M. Reich, Director, Office of Thrift Supervision; and Donald Kohn, Vice Chairman, Board of Governors, Federal Reserve System.
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