Splitting NCUA/NUSIF would create new problems

Credit union leaders, advocates and observers reliably devote attention to NCUA operating and cost structure issues at this time in the agency’s cycle of budget consideration and approval. Some even suggest severing the NCUA from the NCUSIF will end the overhead transfer rate (OTR) debate. While thought provoking, dividing the NCUA and NCUSIF would not be in the best interests of credit unions and their members for the short or long term. Separating the NCUA/NCUSIF functions would solve few complaints, create new problems and costs, and expose the credit union system to a `divide and conquer’ strategy by competitors. The NCUA has direct oversight responsibility for the NCUSIF. The structure of the NCUSIF under NCUA’s oversight is a unique and extremely cost effective system. The establishment of the NCUSIF in 1970 (making NCUA both a regulator and insurer, creating the OTR, and the re-capitalization of the NCUSIF in 1984) was a highly prized win for credit unions that preserved their uniqueness, identity and autonomy. The only other remotely comparable model is the FDIC and the Bank Insurance Fund (BIF). While FDIC oversees the BIF, supervision of BIF insured institutions is split among three Federal entities and the state banking supervisors. It is this sort of split responsibility that some suggest for NCUA. The numbers speak for themselves. The operating cost of the Bank Insurance Fund (BIF), measured in terms of operating expenses compared to insured deposits, for year 2000, was $336 per million dollars of insured deposits. The comparable numbers for the NCUSIF for year 2000, were $180 of operating expenses per million dollars of insured deposits. Although the amount of BIF insured deposits are about 6 1/2 times the amount of NCUSIF insured deposits, it costs nearly twice as much to operate. So much for economy of scale. Dividing NCUA’s insurance and regulatory functions would inevitably increase the regulatory costs. When cost is the primary motivating factor in the OTR debate, at least for state chartered credit unions, it is hard to see how two boards, two buildings and three sets of supervisory organizations are going to alleviate whatever ails the present arrangement. Although NCUA is empowered to employ separate insurance fund examiners, it has chosen to perform both of its functions (that is, federal credit union supervisor/regulator and NCUSIF manager) with the same employees, using one set of examination procedures. NCUA uses reports prepared by state supervisors and other parties to the maximum extent feasible. It is this structure that produces the maximum cost efficiency for all credit unions. A division of responsibilities would not end the natural tendency to question how costs are allocated. Outside scrutiny of our dual role has yielded positive comments. In 1996, Congress directed the Treasury Department to study the entire credit union system, including the potential costs and benefits of having some entity other than NCUA administer the NCUSIF. The Treasury study made numerous recommendations but overall, after a thorough review, the Treasury Department concluded that the NCUSIF would be best left under NCUA. The misunderstanding of the OTR can be attributed, at least in part, to a lack of open dialogue. The current NCUA Board’s commitment to public discussion and careful consideration of all views on its budget and budget-related matters will help everyone better understand the process and methodology we use to reach a fair and equitable OTR. As far as management of the NCUA/NCUSIF is concerned, there is no reason to consider such a counterproductive and costly split of these essential regulatory functions.