Written with a healthy dose of humor that made me SMH, Executive Editor Heather Anderson's column titled “SMH at FinCEN and the NCUA” appropriately criticized the U.S. Treasury's Financial Crimes Enforcement Network's embarrassing leak about at-risk credit unions published in the Wall Street Journal. Her column also exposed an important political dynamic that should be of great concern to officials within the credit union industry. The U.S. Treasury has a long-held agenda that includes reforming, and restructuring, the NCUSIF.
Equally disturbing was that, whether intentional or not, the U.S. Treasury apparently leaked the so-called confidential report to the WSJ, while neglecting to include the NCUA in the loop. Financial Stability Oversight Council member and NCUA Chairman Debbie Matz would be justified in chiding FSOC Chairman and U.S. Secretary of the Treasury Jack Lew concerning the matter. After all, among its duties, the FSOC is charged with identifying and managing systemic risks, and protecting the financial system from terrorists and drug lords is a national priority. As Ms. Anderson alluded, the FinCEN's faux pas could very well have been deliberate.
Anderson also suggested that “the NCUA continues to focus so much on protecting the share insurance fund while focusing too little on the industry's reputation risk that arises from fraud.” Accurate again, yet it was probably an understatement. The NCUA's Fiscal Year 2015 Overhead Transfer Rate was 69.2%, suggesting that the NCUA is really a federal deposit insurance fund that runs a side business doing a few other things. Take away the deposit insurance function, and little remains but unnecessary costs.
The NCUA, the NCUSIF and the Temporary Corporate Credit Union Stabilization Fund are separate eggs held in the same inseparable deposit insurance basket. Although many within the credit union industry would prefer to purge it from their memories, the U.S. Treasury stepped in to assist the NCUA with tens of billions of dollars to manage the corporate credit union fiasco that could have been an industry-killer.
The U.S. Treasury was the NCUA's major advisor during that troubled time when the corporate system resolution program was designed. The U.S. Treasury also told the credit union deposit insurer how to re-securitize the corporate credit unions' below-investment-grade legacy assets, back them with a federal government guarantee, and get them off the books of the NCUSIF and the TCCUSF through Government Accounting Standards (rather than GAAP).
In the meantime, the NCUA had a secret plan to do what the FDIC had already done – double the capital required in the NCUSIF from 1% to 2% over time, and give the NCUA Board the flexibility to change the fund's threshold at which credit unions receive a dividend when times are good. Whether the U.S. Treasury was pressuring the NCUA to restructure the deposit insurance fund is a subject for conjecture and speculation. Nonetheless, the TCCUSF still owes the U.S. Treasury's Federal Financing Bank several billion dollars, and the U.S. Treasury has a creditor's keen interest in the health of the NCUSIF and the TCCUSF.
And the U.S. Treasury's long-held political agenda even pre-dates the Dodd-Frank Act and the corporate credit union mess. In March 2008, the U.S. Treasury's Blueprint for a Modernized Financial Regulatory Structurecalled for consolidating all financial depository regulators and deposit insurers. Based upon recent developments, it would appear that no dust has settled on that ancient U.S. Treasury tome.
Marvin Umholtz
Consultant
Olympia, Wash.
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