On Friday, credit union labor organizations CUNA and NAFCU filed letters to the Federal Reserve regarding the Federal Reserve Board’s proposed guidelines for evaluating applications for services and accounts at Reserve Banks. It’s a move trades said was welcome, but they warned a new assessment framework could add “unnecessary risk to the payment system”.
The guidelines proposed by the Federal Reserve have added a tiered framework for assessing applications for Reserve Bank accounts and services. Under the guidelines, Federally Insured Credit Unions (FICUs) are considered Tier 1 institutions, the lowest risk category. Non-federally insured organizations are considered higher risk and would be included as Tier 3 institutions.
CUNA and NAFCU asked the Fed for more details on risk assessment standards for Tier 3 institutions “that are at least equivalent to the prudential frameworks governing federally insured institutions.”
NAFCU Senior Research and Policy Advocate Andrew Morris wrote“Unlike banks, credit unions face strict limits on the investments they can make, the business loans they can offer, and the investments they can make. complexity of credit union balance sheets and greatly minimize the already remote possibility that credit unions give rise to risks that could affect the entire U.S. financial system.Moreover, credit unions do not operate through structures portfolio company complexities that could frustrate efforts to develop a holistic risk assessment.
According to a statement from the NAFCU, Morris identified two forms of criteria for the proposed guidelines to include:
- That the guidelines do not result in additional charges for FICUs currently seeking or accessing Reserve Bank accounts or services.
- That non-federally insured entities be subject to a high enough level of due diligence and oversight to account for unique risks and differences in prudential oversight.
In a reportCUNA said its main concern is that Reserve Banks will apply these proposed guidelines inconsistently, “which could lead to different results for applications and possibly differences in how entities are supervised for continued compliance. “.
CUNA’s letter said, “For eligible entities, access would be conditional on meeting the requirements of the guidelines, which allows the Board and Reserve Banks to ensure that entities with Reserve accounts federal do not add risk to the payment system. The board’s goal should be to enforce a similar level of requirements with processes to ensure compliance, as is the case for a federally or state regulated credit union or bank. Any entity that does not meet these requirements should be denied access to the payment system.