Hood Asks Congress to Boost Member Business Lending Cap and Decrease Capital Requirements

Amid some opposition from a key Democrat, NCUA Chairman Rodney Hood told the Senate Banking Committee Tuesday that Congress should decrease capital standards for credit unions, as they respond to economic problems caused by the coronavirus crisis.

Hood said that he would like Congress to authorize a temporary reduction in minimum capital requirements—reducing the level at which credit unions are considered well capitalized from a net-worth ratio of 7% to 6%. He said that the level for “adequately capitalized” credit unions should be cut from 6% to 5%.

Senate Banking Committee ranking Democrat Sherrod Brown of Ohio called that proposal dangerous and criticized the agency for providing flexibility in requirements for real estate assessments. “The NCUA is also rolling back some of the very protections we put in place in response to our last financial crisis – reducing and delaying rules that protect real estate borrowers, and lowering capital and loan reserve standards that ensure that credit unions can lend in their communities during a downturn,” Brown said.

NCUA board member Todd Harper, a Democrat like Brown, opposes that plan.

Hood faced few questions during the hearing, with senators from both parties concentrating on banking regulators that supervise the majority of the nation’s financial institutions. Some senators, most notably Democrats, hammered Comptroller of the Currency Joseph Otting for pushing changes to the Community Reinvestment Act, which does not apply to credit unions. “Instead of pitching in to help, the OCC and FDIC want to gut one of the few tools we have to make sure banks pay any attention to underserved communities and rural areas,” Brown said. Others focused on efforts to provide liquidity to banks.

The Banking Committee hearing was held remotely, with none of the senators in a committee room. Hood testified remotely as well, sitting in front of the agency seal and American and agency flags.

Hood also told the committee that Congress should increase the Member Business Loan cap from 12.5% to 20% during the recovery. “This adjustment will inject vital capital into the small businesses credit unions serve,” he said. And he repeated his request for Congress to permanently amend federal law to allow all credit unions to serve underserved areas.

In letters to the Banking Committee, credit union trade groups commended the NCUA for rule changes that allow credit unions to better respond to the coronavirus crisis.

In his letter, CUNA President/CEO Jim Nussle echoed Hood’s request that Congress allow credit unions to make more business loans. He said that Congress should exempt all business loans from the cap for one year following the end of the pandemic emergency declaration. “This is simply common sense: it is in everyone’s interest that all deployable business credit is available to small businesses during the recovery,” he said.

He also said that credit union capital standards should be adjusted during the coronavirus crisis. “This approach is consistent with the spirit of previous interagency guidance distributed to all insured depository institutions and would clearly reflect bipartisan congressional intent to move the economy and the financial system to the other side of the crisis with as little disruption as possible,” he said.

Brad Thaler, NAFCU’s vice president for legislative affairs, said the reduction in capital standards would be on par with community bank adjustments. He also called the MBL cap “outdated and arbitrary,” noting that changes have bipartisan support in the House and Senate.


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