CUNA, NAFCU weigh in on Senate Banking Committee hearing, call for legislative, regulatory changes.
As Congress and the banking regulators investigate the causes of the recent failures of two banks, credit union trade groups are telling them the crisis should not increase the regulatory burden on their institutions.
“We can be clear on this: our community-focused credit unions did not cause the collapse of one of the largest regional banks in the country, and should not face more federal regulation or increased fees due to these banks’ actions,” CUNA President/CEO Jim Nussle told the Senate Banking Committee in a letter. “Risks borne by the banks should not be paid for by credit unions that serve communities across our country.”
The Banking Committee held a hearing Tuesday on the failures of Silicon Valley Bank and Signature Bank.
Nussle and NAFCU Vice President of Legislative Affairs Brad Thaler additionally asked the committee to consider some legislative and regulatory changes.
Nussle urged the committee to restore pandemic-related changes that allowed small credit unions to have access to the NCUA’s Central Liquidity Facility.
“This would provide much-needed confidence for our small financial institutions—at no cost to taxpayers,” he wrote.
Nussle also asked the lawmakers and bank regulators to allow privately insured credit union access to the new Federal Reserve Bank Term Funding Program, which was created to help avoid liquidity problems in case more financial institutions find themselves in trouble.
In his letter, Thaler urged the Banking Committee to ensure that any changes that are made to insurance coverage thresholds at the banking agencies also apply to credit unions.
“While we are not advocating for changes for coverage limits for the [National Credit Union Share Insurance Fund] at this time, any changes to FDIC coverage levels must include parity in coverage levels for the NCUSIF while not changing the tried and tested structure, funding, and operations of the NCUSIF,” he wrote.
Accounts of up to $250,000 are guaranteed at banks and credit unions, and banking regulators have been discussing whether that level should be increased, since some 90% of the accounts at Silicon Valley Bank were above that threshold.
The federal government has agreed to guarantee all accounts at the bank, even if they are above $250,000.
NCUA Share Insurance Webinar
In a possibly related development, the NCUA announced Tuesday that it will be holding a webinar on share insurance on April 13. The agency did not link the webinar to the discussions about increasing the insurance threshold, but in announcing the event said, “Share insurance is fundamental to the credit union system, and it’s a complex topic.”
The agency also listed the topics to be discussed:
- Types of accounts covered by share insurance;
- What happens to share insurance coverage when credit unions merge;
- What happens to insurance of accounts if a member passes away;
- General information about trusts.
What Happened at the Hearing Itself?
Meanwhile, during Tuesday’s hearing, lawmakers engaged in a simple game of finger-pointing. Senate Banking Chairman Sen. Sherrod Brown, D-Ohio, blamed bank executives and supporters of a law enacted during the Trump Administration that he said loosened bank regulations.
“The scene of the crime does not start with the regulators before us,” he said. “Instead, we must look inside the bank, at the bank CEOs, and at the Trump-era banking regulators, who made it their mission to give Wall Street everything it wanted.”
On the other hand, Senate Banking Committee ranking Republican Sen. Tim Scott, R-S.C., blamed Biden Administration financial regulators. He said that officials at the San Francisco Federal Reserve office were examining the impact of climate change rather than conducting proper oversight of Silicon Valley Bank.
“The Fed should focus on its mission and not the climate arena,” he stated. “This is a waste of time, attention, and manpower. All things that could have gone into bank supervision.”
He added, “By all accounts, our regulators appear to have been asleep at the wheel.”
What Happens Next?
For their part, banking regulators said they are conducting a review of the causes of the bank failures and whether the federal account insurance threshold should be increased.
“To begin, SVB’s failure is a textbook case of mismanagement,” Michael Barr, the Fed’s vice chairman for supervision, told the committee. “The bank had a concentrated business model, serving the technology and venture capital sector.”
He noted further that Fed officials are evaluating whether more stringent standards would have prompted the bank to better manage its risks.
In his testimony, FDIC Chairman Martin Gruenberg explained his agency is conducting a review of the deposit insurance system; it will include “policy options for consideration related to deposit insurance coverage levels, excess deposit insurance, and the implications for risk-based pricing and deposit insurance fund adequacy.”
He said that the review will be completed by May 1.