NCUA has two critical but distinct roles in the credit union system. It is the prudential regulator for federal credit unions and the administrator of the share insurance fund for all federally insured credit unions. NCUA has an obligation to balance those roles with the authority properly reserved to the states.
Requiring state regulatory experience to always be represented on the NCUA Board could help achieve that balance. The FDIC has had such a statutory requirement since 1996, and the Federal Credit Union Act (FCUA) should be amended to bring parity between the two federal deposit insurers. In addition, increasing the NCUA Board from three to five members would improve the deliberative processes of the agency by removing a statutory restriction that currently obstructs board communications.
State Regulatory Experience A Plus
The NCUA Board is responsible for the safe, sound, and effective administration of the credit union share insurance fund, 41% of whose stakeholder credit unions are state-chartered. In consideration of the substantial interaction between the board and state regulators, and the importance of the dual chartering system to the health and safety of the entire credit union system, one seat on the NCUA board should be designated for a person with state credit union supervisory experience.
State credit unions and state regulators have been at the forefront of operational and supervisory innovations that have led the credit union system into the current age. Codifying an NCUA board seat for a state regulator who understands the critical role of the state system would help ensure that a meaningful dual chartering system will persevere, would facilitate coordination between NCUA and the states, and would provide valuable insight into the dual nature of the credit union system. This person might also be able to bring to the NCUA board an appreciation and understanding of the diversity of regulatory approaches that have proven successful at the state level. As just one example, a state regulator might be familiar with activities that while atypical for credit unions, are commonplace across other state regulated financial service providers.
Learning from FDIC
Congress and the FDIC recognized the need for strong state regulatory representation on the FDIC Board in the mid-1990s to sustain dual chartering in the banking system. The same need exists in the credit union system.
NASCUS believes that expanding the board to five members would enhance NCUA's deliberative process, increase the board's depth of experience and expertise, and allow for direct communication between board members.
The Government in the Sunshine Act (Sunshine Act) essentially dictates that whenever there are enough board members involved in a discussion of policy to be able to take action on behalf of the agency, an agency meeting is in session and must be opened to the public. Consequently, this limits the NCUA Board's ability to discuss business among the principals. Expanding the NCUA Board from three to five members would facilitate the efficient administration of NCUA business by allowing two Board members to discuss important issues with each other without triggering the Sunshine Act. Although some may not believe that improved dialogue between agency leaders will improve agency operations, it is even harder to believe that operations are properly streamlined when all communications between leadership must be in open session or filtered through the perspective of third-party staffers, as the law currently provides.
However, the benefits of expanding the NCUA Board to five members goes beyond increased communication between the principals. Additional board members provide additional perspectives. This enhances the deliberative process. NCUA itself requires all federal credit unions to carry a minimum of five board members, presumably to ensure that the decision making at the credit union's board level is robust and informed.
Increased Cost, But...
Regulators know that pursuing effective operations can often lead to increased costs, and expanding the NCUA Board by a mere two seats is no different. Ultimately it is for the CU system's stakeholders to determine whether that additional expense is worth the potential for improved deliberation at the NCUA.
Coming out of the economic downturn, regulators have engaged in a thorough review of the regulatory framework for CUs to identify weaknesses, strengthen supervision, and prepare for the future. Regulators themselves must also be open to the need for change.
Expanding the NCUA Board from three to five members and reserving one of those seats for a person with state supervisory experience will improve NCUA oversight of the share insurance fund. It will help NCUA balance its approach to regulation, strengthen the dual chartering system, improve deliberation, and in turn, establish a more promising future for the credit union movement.
Mary Martha Fortney is the president and CEO of the National Association of State Credit Union Supervisors. She can be contacted by email at firstname.lastname@example.org.