NASCUS outlines to acting NCUA chair
areas of state/federal collaboration

Supplemental capital, OTR – and seven additional issues detailed

Supplemental capital and an easily understood overhead transfer rate (OTR) methodolgy are two issues the state credit union system looks forward to working with new Acting NCUA Chairman J. Mark McWatters, NASCUS President and CEO Lucy Ito said in a congratulatory letter to the new leader.

Additionally, she outlined seven other issues of interest that the state system is ready to assist the new acting chairman in addressing – including whether the agency’s risk-based capital rule should be revisited, and the establishment of a “credit union advisory council” at the agency.

Ito pointed out that President Donald Trump’s swift action in appointing McWatters’ (to date, he is the only federal financial institution regulator appointed by the new president) “sends a clear message that NCUA is a critical agency and that the credit union system and America’s consumers should benefit from your leadership without delay.” She added that NASCUS has welcomed McWatters’ perspectives and “we thank you for consistently acknowledging the role of state regulators and the value of working with them.”

On supplemental capital, Ito noted that NASCUS has long supported the authority for credit unions, and noted that 15 states permit it for their credit unions. “In addition, with their experience supervising a variety of banking and securities industries in addition to credit unions, state regulators will be a valuable resource as NCUA moves forward with capital reform,” she wrote.

Regarding OTR methodology and transparency, Ito said the state system looks forward to NCUA completing the public comment process that was initiated last year, and stands ready to work with the agency toward shared objectives of greater transparency and an easily comprehended OTR methodology. “We also urge the NCUA board to retain its important responsibility of budgetary oversight and its fiduciary responsibility to the fund by not delegating OTR implementation authority to agency staff,” she added.

The NASCUS leader also listed seven additional areas in which the state system is “well positioned to assist” the new, acting chairman of the federal credit union agency. Those areas are:

  • Risk-based capital rule, and re-engaging on the rule’s merits;
  • Establishment of a “Credit Union Advisory Council” at the agency, noting that 22 out of 45 states already do so, and which generate “common sense solutions that simultaneously assure appropriate safety measures and foster credit union growth;’
  • Adoption of “S” (for “sensitivity” to market risk) in the CAMEL rating system – which 16 states have already also done;
  • Greater fraud prevention and detection cooperation between states and the federal agency;
  • Drawing FASB recognition of CU differences, as many state regulators supervise both creditd unions and banks (and can readily observe the CU difference that may be discounted by the accounting standards group);
  • Working with Congress on any updates to Title II of the Federal Credit Union Act;
  • Consolidate rules applicable to federally insured, state chartered credit unions (FISCUs) to make it easier for credit unions and state and federal examiners to understand the rules that apply.

The complete text of Ito’s letter to McWatters follows:

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Feb. 6, 2017

The Honorable J. Mark McWatters
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Dear Acting Chairman McWatters:

On behalf of the state regulators and state credit unions NASCUS represents, sincere congratulations on being named Acting NCUA Chairman by President Trump.  By moving swiftly on your appointment, the President sends a clear message that NCUA is a critical agency and that the credit union system and America’s consumers should benefit from your leadership without delay.

Since you joined the NCUA Board in late 2014, you have demonstrated a depth and breadth of knowledge that has greatly enhanced the deliberative proceedings of the NCUA board.  NASCUS has welcomed your refreshing and considered perspectives and we thank you for consistently acknowledging the role of state regulators and the value of working with them.  We applaud your commitment to fostering a robust dual-chartering framework that assures the safety and soundness of our nation’s credit unions and enables the innovations that ultimately benefit America’s consumers. 

In particular, we appreciate your leadership at NCUA on an array of critical issues for the credit union system including supplemental capital to help meet forthcoming risk-based capital requirements and the transparency of the agency’s budget process including the overhead transfer rate methodology.  We look forward to continuing to work with you to advance efforts on these fronts:

Supplemental Capital
NASCUS has long supported this authority for credit unions and we welcome an additional line of defense to protect the Share Insurance Fund.  Today, 15 states permit supplemental capital authority for credit unions.  In addition, with their experience supervising a variety of banking and securities industries in addition to credit unions, state regulators will be a valuable resource as NCUA moves forward with capital reform

Budget Process Transparency & OTR Methodology
NASCUS commends NCUA for putting the OTR methodology out for public notice and comment and holding a public budget briefing in 2016.  NASCUS looks forward to NCUA completing the public comment process that was initiated last year and we stand ready to work with NCUA towards our shared objectives of greater transparency and an easily comprehended OTR methodology.  We also urge the NCUA board to retain its important responsibility of budgetary oversight and its fiduciary responsibility to the fund by not delegating OTR implementation authority to agency staff.

There are, of course, more issues to address.  While NASCUS and the state credit union system are prepared to collaborate on all of the issues you have identified for tackling in 2017, NASCUS and the state credit union system are particularly well-positioned to assist with the following:

Whether NCUA’s Risk-based Capital Rule Should be Re-visited
NASCUS, state regulators, and state credit unions commented heavily and ardently throughout NCUA’s rule-making process and are prepared to re-engage on the rule’s merits.

Establishment of a Credit Union Advisory Council
22 out of the 45 states with state-chartered credit unions appoint a credit union advisory body to counsel the state supervisory authority.  NASCUS, itself, seats a Credit Union Advisory Council to advise the NASCUS Regulator Board and our Legislative & Regulatory Affairs Committee is populated with both state regulators and credit union practitioners.  In our experience, combining the safety and soundness concerns of regulators with the market and operational realities faced by credit unions has reliably generated common sense solutions that simultaneously assure appropriate safety measures and foster credit union growth. 

Interest Rate Risk
As we previously shared with you, 16 states have already adopted the CAMELS rating system that separately evaluates “Sensitivity to Market Risk” in credit unions.  We are aware of 7 more states that are considering adding the “S”.  While IRR guidance was recently issued by the agency, we encourage NCUA to adopt and implement CAMELS before interest rates rise significantly. 

Fraud
As you have noted, this is an ongoing challenge.  NCUA and state regulators already collaborate in this arena.  Perhaps even greater cooperation on detecting and preventing fraud is possible.

FASB Recognition of Credit Union Differences
Because they supervise both credit unions and banks, state regulators can readily observe the credit union differences that may inadvertently be discounted by FASB.  As such, state regulators can be a helpful resource to NCUA.

Working with Congress to Update Federal Credit Union Act
With the vast majority of state-chartered credit unions insured federally by NCUA and therefore subject to the FCU Act, NASCUS has a keen interest in working with NCUA on any updates to Title II and we are ready to support NCUA in any necessary changes elsewhere in the Act.

Alignment between NCUA’s Strategic Priorities and the Federal CU Act & NCUA Rules & Regulations
The state credit union system is committed to constructive cooperation with NCUA to attain our shared objectives.  NASCUS, state regulators, and state credit unions are willing to participate in any review of the purposes of Title II as well as Part 741.  Specifically, we recommend consolidating rules applicable to FISCUs to make it easier for FISCUs and examiners—both state and federal—to understand which rules apply, thus facilitating compliance and reducing regulatory burden. 

In closing, I congratulate you, again, and sincerely offer the assistance of NASCUS, our state regulators, and our state credit unions in your efforts to advance a safe, sound, and enabled credit union system and an agency ethos that is market-oriented, transparent, and fully accountable to its stakeholders.

Hats off to you.  And, please do not hesitate to let me know how I or NASCUS can be helpful.

Best regards,
Lucy Ito
President & CEO

cc: 

NASCUS Regulator Board
NASCUS Credit Union Advisory Council
Sarah Vega, Chief of Staff & Senior Policy Advisor, NCUA

Information Contact:
Patrick Keefe, Vice President, Communications, pkeefe@nascus.org or (703) 528-5974

The National Association of State Credit Union Supervisors (NASCUS) is the primary resource and voice of the state governmental agencies that charter, regulate and examine the nation’s state-chartered credit unions. NASCUS membership is made up of state-chartered credit unions, state regulators and other supporters of the state credit union system. NASCUS is the only organization dedicated to the defense and promotion of the state credit union charter and the autonomy of state credit union regulatory agencies.