NASCUS is Finished Merely Complaining About Structure of NCUA; Releases Reorganization Plan

ARLINGTON, Va. – Reforming the structure and organization of NCUA to allow for a clearer delineation of the insurance and regulatory functions of the federal agency has been on NASCUS’ radar screen for awhile. After completing an extensive study on Restructuring the NCUA, NASCUS has released its reorganization plan for the agency. The study that was researched and written by NASCUS Chairman Roger Little, deputy commissioner of the Michigan Office of Financial and Insurance Services, Credit Union Division, and NASCUS’ Brian Knight, director of legal and policy analysis concludes that: “It is the view of NASCUS that the current NCUA structure is flawed and provides for conflicts of interest that must be addressed. It is NASCUS’ recommendation that NCUA should create a `Director of Insurance’ coequal to the Executive Director, General Counsel and Inspector General and that this separation of NCUA’s insurance and chartering authorities should take place throughout the agency.” NASCUS emphasizes though that the NCUSIF should remain within the NCUA and the NCUA should remain an independent federal agency. “We’re not supporting the idea that the share insurance fund should be merged with the FDIC or taken from the NCUA Board,” Little stressed to Credit Union Times. “But it needs to have improved control and a greater separation between what’s insurance and regulatory related. That will enhance the long term prospects of having the insurance funds staying within NCUA,” he said. Inherent Problems “In essence, NCUA is hampered by two related conflicts of interest that arise because the insurance [Insurer] and chartering, regulatory, and supervisory [Chartering Authority] functions are commingled at NCUA and indistinguishable for all practical purposes. There should be greater checks and balances between the NCUSIF and the supervision of federal credit unions,” the report reads. The report notes that the General Accounting Office (GAO) expressed its concern over NCUA’s alleged supervisory conflict of interest in 1991 in its report on credit unions where it stated that “a clearer distinction between the chartering, regulatory and supervisory functions, and the insurance function needs to be made. Separate positions for a Director of Supervision and a Director of Insurance should be established, each reporting separately to the Board,” the GAO wrote in its report. NASCUS said its proposal to reorganize the NCUA is modeled on the State Regulator/NCUSIF structure. In general, it separates the insurance functions from the NCUA’s chartering functions, and “it would restore regulatory competition to the benefit of both regulatory agencies and their credit unions. It would result in fiscal accountability for the NCUA both toward its federal credit unions and the NCUSIF. It would restore public and Congressional confidence in the NCUA’s ability to carry out its dual missions effectively. Remedying those conflicts would create a healthier federal agency, provide greater protection to the credit union deposits held by the NCUSIF, and create greater accountability within the NCUA.” Under the current organization plan, the report explains, NCUA classifies a variety of staff as insurance functions – “the NCUA personnel responsible for administering the insurance fund are the same people responsible for chartering federal credit unions, examining federal credit unions, regulating federal credit unions, and promoting the federal charter” – and by doing this NASCUS argues “the NCUA is subsidizing the federal charter at the expense of state-chartered credit unions.” The association opines that, “the classifying of chartering and field-of-membership issues, federal credit union name and bylaws changes, low-income designations, and other such related work is more properly the responsibility of the chartering authority and not the insurer.” Little told Credit Union Times that while Knight and he began the actual work on the report six to eight months ago, “the ideas have been formulating for a number of years.” He explained that NASCUS’ view is “the current system may lead to a blending of funding between the regulation of federal credit unions and the insurance fund.” Little addressed this issue in October when he testified in front of the NCUA Board at its budget briefing. In presenting NASCUS’ opinion on the agency’s proposed budget for FY 2005-05, Little told the board that “NASCUS’ concern with the NCUA budget is less one of spending than one of accounting and appropriate segregation of functions. Given NCUA’s mandate under Title I of the Federal Credit Union Act to regulate federal credit unions and NCUA’s responsibility under Title II to manage the Share Insurance Fund, it is imperative, in our view, that NCUA properly segragate costs for both of those responsibilities when developing its budget.” He noted to Credit Union Times that, “NCUA is the only federal agency that regulates federal credit unions as well as an insurance fund.” On the banking side, there is a clear delineation between the federal bank regulator and deposit insurance, he said. Little explained that a financial institution regulatory agency does certain things that are grounded in the idea of protecting the safety and soundness of the regulated institutions. “But NCUA’s position is anything that has to do with safety and soundness is insurance related, not a regulatory obligation, and is solely an issue of their role as insurer,” he said. “That position is not consistent with the rest of the financial institution regulatory world.” Little continued: “Our interest is fairly narrow. NASCUS doesn’t have any concerns with NCUA’s budget. Our concern is the cost of the share insurance fund for credit unions. Our premise is that the current system results in the cost for federal credit unions of being regulated being understated, and the deposit insurance fund cost being overstated.” Every Little Bit Helps Commenting on the NCUA’s decision, as evidenced in its November board meeting, to make the overhead transfer rate setting process more transparent and to use a new formula to determine the OTR, the NASCUS Chairman said “NCUA is to be commended for its efforts to break out the costs involved for the management of the insurance fund and its regulatory responsibilities. The new formula is a positive move on NCUA’s part.” He added that “NCUA has demonstrated a willingness to work with NASCUS on this issue.” Little said NCUA had received a copy of Restructuring the NCUA and he said the agency was in the process of reviewing the report. “The NCUA fundamentally disagrees with our interpretation, but our dialogue with them is on-going and constructive. We want this to be a thoughtful process.” He added that the proposal could be accomplished through administrative changes and wouldn’t require legislation. He further explained that, “NASCUS’ focus has been on the amount of the overhead transfer rate. Now we’ve moved beyond that, and view the OTR as a symptom of the larger issue concerning the structuring of NCUA. “NASCUS doesn’t have the ultimate solution to the situation,” Little said. “We wanted to put something on the table to facilitate the discussion on how to get from point A to point B. We felt there was a need to put something on the table rather than just complain about the situation, so NASCUS decided to take the initiative.” Little said NASCUS is aware that the association’s proposed reorganization plan for NCUA raises several critical cost issues – the cost of reorganizing, the impact on the NCUA’s annual budget, and accounting/allocation costs. “With a more accurate accounting of the expenses of chartering and supervising federal credit unions and administering the NCUSIF, the NCUA will be forced to develop spending discipline,” the report states. -