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Obtaining examination and enforcement over third-party vendors – credit union service organizations and others – is NCUA's "top legislative priority," according to testimony delivered in a Senate Banking Committee hearing yesterday by NCUA Director of Examination and Insurance Director Larry Fazio.

Fazio was before the committee Tuesday for a hearing that addressed regulatory relief for community banks and credit unions. During the Q&A portion of the hearing, several senators on the panel wanted confirmation that the regulators present – FDIC, Federal Reserve Board, Office of the Comptroller of the Currency, Conference of State Bank Supervisors and NCUA – were doing all they could to protect smaller community banks and credit unions from regulations meant only to address larger financial institutions.

Other concerns shared by senators related to the dwindling number of small financial institutions and how the increase in compliance costs is affecting them.

Members of the panel also asked what they could do to help ease the regulatory burden on smaller financial institutions.

Fazio, in his opening statement, testified that third-party vendor authority is a legislative fix NCUA deems especially important given rising cybersecurity threats. However, NAFCU continues to oppose giving NCUA direct authority over third-party vendors, calling such authority unnecessary since credit unions, by regulation, already facilitate direct reports to the agency by vendors with which they maintain working relationships.

In addition, Fazio listed two other legislative priorities of NCUA: enhanced access to emergency liquidity for the credit union system by making targeted changes to the Central Liquidity Facility and expanding NCUA access to the U.S. Treasury; and authority for NCUA to charge risk-based premiums for the National Credit Union Share Insurance Fund much like FDIC charges for the Deposit Insurance Fund.

Fazio also suggested more flexibility within the Federal Credit Union Act for the agency to write rules concerning supplemental capital, field-of-membership restrictions, curbs on investments in asset-backed securities and the 15-year loan maturity limit.

He asked that Congress modify the Federal Credit Union Act to give NCUA the authority to streamline field-of-membership changes and "permit all federal credit unions to grow their membership by adding underserved areas," action that NAFCU has long advocated.

He also said Congress can make adjustments to credit unions' member business lending cap by passing legislation such as last Congress' "Credit Union Residential Loan Parity Act," also supported by NAFCU. That legislation would have addressed a statutory disparity in the treatment of certain residential loans made by financial institutions.

Regarding credit unions' supplemental capital, Fazio recommended passing legislation to allow "healthy and well-managed credit unions to issue supplemental capital that will count as net worth."