Largest U.S. Credit Union May Avoid Systemic Designation

Navy Federal Credit Union, the largest such institution in the U.S., is unlikely to be designated systemically important, according to a member of the Financial Stability Oversight Council.

“What we are looking at are non-regulated entities like insurance companies,” Debbie Matz, who serves on the council as chairman of the National Credit Union Administration, said in an interview in her office in Alexandria, Virginia, today. Even the largest credit union wouldn’t draw the council’s oversight because it’s already federally regulated, she said.

The council, created by the Dodd-Frank Act in the aftermath of the 2008 financial crisis, reviews non-bank financial firms that have $50 billion in assets and meet some other criteria to decide if they warrant designation as posing a potential risk to the financial system. While all banks with more than $50 billion in assets are automatically put under increased Federal Reserve oversight, credit unions, insurance companies, hedge funds and other non-banks would have to be reviewed separately.

Vienna, Virginia-based Navy Federal, which serves U.S. military personnel and their families, has been mentioned by American Bankers Association’s vice president and senior economist Keith Leggett as meeting minimal criteria for being considered systemically important because it has $54.3 billion in assets.

‘Financially Sound’

“Navy Federal is strongly capitalized, conservatively managed and financially sound,” spokeswoman Jeanette Mack said in an e-mail. “We never entered into any of the risky business practices that led to the economic crisis. Nor have we ever engaged in subprime lending. Decisions are always made in the best interest of our members: the U.S. armed forces and their families.”

Credit unions topped $1 trillion in assets, the industry regulator said last year. If the industry were a single bank, it would be the fifth largest in the U.S. and less than half the size of JPMorgan Chase & Co.

“Our job at FSOC is looking at those that do not have a prudential regulator” at the federal level, Matz said today. “Since credit unions do, it wouldn’t come under FSOC.”

American International Group Inc., Prudential Financial Inc. and General Electric Co.’s finance unit are in the final stage of review by the council, whose member agencies also include the Federal Reserve and the Commodity Futures Trading Commission.

Aside from assets, criteria for systemically important designation include a 15-to-1 leverage ratio, $3.5 billion in derivatives liabilities or $20 billion of outstanding loans borrowed and bonds issued.

The council, led by Treasury Secretary Jacob J. Lew, will meet for an open session on April 25 to vote on its annual report.

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