WASHINGTON — The Defense Credit Union Council is backing two proposed regulatory changes by the Federal Housing Finance Agency, saying the moves would reduce unnecessary requirements while maintaining appropriate oversight of counterparty risks and Federal Home Loan Banks.
In comments filed with the FHFA, DCUC supported the agency’s proposal to amend its Suspended Counterparty Program by eliminating “reputational harm” as a consideration under the regulation. The organization also endorsed a separate proposal to repeal regulations governing new business activities at Federal Home Loan Banks.
America’s Credit Unions has also expressed support for the measure.
Reputational Harm Standard
DCUC said removing “reputational harm” from the Suspended Counterparty Program would eliminate regulatory redundancy and reinforce the principle that FHFA supervision of counterparty risk should be based on measurable risks.
The council also said the change would bring the FHFA’s approach more closely in line with that of other financial regulators, including the National Credit Union Administration, in their treatment of reputational risk.
DCUC said the proposed amendment would provide greater clarity and transparency in FHFA regulations.
The Suspended Counterparty Program allows the FHFA to suspend individuals and entities from doing business with the agency’s regulated entities based on certain misconduct and risks.
Federal Home Loan Bank Rule
DCUC also endorsed the FHFA’s proposal to repeal its New Business Activities regulation for the Federal Home Loan Banks.
The council argued the existing requirement has little practical effect on the development and deployment of new products and services because few new activities undertaken by the banks reach the level of risk that requires submission of a New Business Activities notice to the FHFA.
DCUC said eliminating the requirement would not remove FHFA oversight of new activities at the banks. The FHLBs would remain subject to the agency’s ongoing prudential supervision and examination process, which includes the development of new business activities.
Legal, policy or supervisory concerns related to those activities could still be addressed through the examination process, DCUC said.
The council also argued that Federal Home Loan Banks have their own incentive to consult with the FHFA early when developing new activities because doing so can help avoid problems that could later prove costly or consume resources.
“Our position is that requiring submission of an NBA notice is duplicative and unnecessary, and the regulation’s repeal will not negatively impact the safety and soundness of the FHLBs,” Jason Stverak, DCUC chief advocacy officer, said.
