Oct. 23, 2015
State regulators need to get comfortable with the discomfort of holding discussions with NCUA about the overhead transfer rate, NASCUS President and CEO Lucy Ito told attendees at the NASCUS State System Summit, who gathered this week in New Orleans and to mark the 50th anniversary of the association. Ito noted that a “healthy debate” is vital about the OTR. She also acknowledged and thanked NCUA Board Chairman Debbie Matz for announcing that, in January, the board would vote on releasing the OTR for public notice and comment (via the Federal Register). In other comments, the NASCUS leader told the group that modernization of NCUA’s field of membership rules (now under consideration by the agency; see below) is applauded by NASCUS, calling it a good thing for the credit union system and consumers, and adding that NCUA’s actions “could be a wake-up call for some states” in modernizing their own FOM rules. She also pointed out that the 13 federal to state charter conversions in 2014-15(compared to three state-to-federal conversions in the same period) are symptoms of a need to review federal FOM rules. With regard to supplemental capital, which may be the subject of a proposed NCUA rule in the coming months, she noted NASCUS looks forward to discussing the proposal with the agency.
NCUA should not wait until 2019 to issue a rule on supplemental capital, but “should have something on the books today,” NCUA Board Member J. Mark McWatters told participants at the NASCUS Summit. “When I first came on to the NCUA Board, I was surprised there wasn't a robust way already on the books to raise supplemental capital,” McWatters said. The NCUA board member said he hoped that a proposal on supplemental capital would be issued by NCUA “within the next two to three months.” (At the NCUA Board meeting last week, Chairman Debbie Matz indicated that a proposal to count supplemental capital in the numerator for risk-based capital purposes is in the works – but, as it will be linked to the new RBC rule, it won’t take effect until 2019..) McWatters added that he would be looking for a final rule for supplemental capital that is “simple, works in the marketplace and is transparent.” In other comments, McWatters said it was “important” that the overhead transfer rate be subjected to public notice and comment. “It’s a legal construct; I'm astonished it has not been put out for comment in the past,” he said. He urged all stakeholders-- regulators, credit unions and others – to weigh in on the OTR when it comes up for comment next year. However, he warned that if the comment proposal is not compliant with the Administrative Procedure Act (APA – which governs federal rule making procedures), “I cannot support it.
A proposed rule to modernize NCUA’s field of membership rules is likely to be issued before year’s end, NCUA Board Vice Chairman Rick Metsger told the Summit participants Thursday. According to Metsger, the proposal (still under development but on the fast track) would place more control of a credit union’s FOM with the board of directors to deal with local marketplace challenges. Metsger said that in about 80% of the cases brought to it, NCUA can take action itself. “I believe we have broad authority to interpret the statute” with respect to FOM, he told the Summit audience. He argued that action is needed by the federal regulatory agency because the trend of charter conversions has recently tilted in favor of state charters, particularly those states that allow broad FOMs. “The federal charter is lagging way behind,” he said. Metsger said the focus of the proposal would be to give credit unions a menu of options for determining their FOMs. The menu approach, he said, is intended to give credit unions choices that best fit their own needs.
In a follow-up panel discussion (featuring state and federal regulators, a legal expert and Metsger himself), the NCUA Board vice chairman explained that the choices would entail “a lot of different things to look at which would fit credit unions and their strategic needs.” For example, one approach would be to grant a credit union an FOM that includes its congressional district – which, in a limited number of states, covers the entire state. During the panel discussion, Linda Jekel, Director of Credit Unions for the Department of Financial Institutions, State of Washington, noted that her state has had statewide FOMs for the past two decades. Over that time, she said, she has seen no relationship between FOM expansions and safety and soundness. “Adding diverse FOMs is not a safety and soundness issue,” she said. “But it has been good for credit unions," noting that more diverse membership has enabled credit unions to weather economic downturns affecting specific occupational or associational members.
Republicans will likely keep their majority in the House of Representatives, Democrats have a chance to take the Senate – and who wins the White House race is anybody’s guess, a panel of advocacy experts told the Summit audience Thursday. The panel – made up of credit union and banking advocates from both sides of the political aisle, as well as the NCUA liaison to Capitol Hill – gave the Summit participants their view of the upcoming 2016 national election. While the group gave the GOP good odds for keeping the House, and discussed “intriguing races” that could tilt the Senate to the Democrats, they also cited a possible “sweep” by Republicans of both sides of the Capitol – and the White House. In that case, they said, Democrats would be ill-positioned to make any gains in the following 2018 election, or perhaps beyond. And the outlook for CFPB in that case? Many changes likely, the group agreed – but that also means credit unions and their regulators would face many changes themselves, as the regulatory pendulum swings the other way. In short: the regulatory framework would be destabilized once again, which ends up costing credit unions financially to come into compliance with the changes.
NASCUS-supported legislation to require NCUA to hold public hearings and accept comment as part of its annual budgetary process -- including the overhead transfer rate – earned words of support from a member of a House subcommittee during a hearing this week on that bill and other regulatory relief measures, as well as a witness at the hearing. Rep. David Scott (D-Ga.), a co-sponsor of the National Credit Union Administration Budget Transparency Act (H.R. 2287), said the bill would help build a more positive relationship between the NCUA and the credit unions the agency supervises. Meanwhile, witness Oliver Ireland (of the Washington, D.C . financial services firm Morrison and Foerster LLP), said the bill would add a sense of discipline to the NCUA’s budgetary process that might not be present now. “If you’re going to make your budget public, you’re going to solicit comment on your budget and you’re going to respond to your budget, that puts you through a discipline to justify what you’re doing,” he said.
Tom Candon is the 2015 Pierre Jay Award winner, an honor conveyed to him at this week’s Summit in New Orleans. The former deputy commissioner of banking for the Vermont Department of Finance, he served as: Chairman of the NASCUS Regulatory Board from 2009-11; a member of the State Regulator Working Group for NCUA Proposed Rule on Risk Based Capital (both I and II); NASCUS Representative to the State Liaison Committee of the FFIEC; a representative on numerous NASCUS Accreditation Teams. Congratulations to Tom! … Guidance for assisting small credit unions with addressing the top cybersecurity threats is contained in the October issue of FOCUS e-newsletter, published recently by NCUA. It’s the first of two articles focusing on cybersecurity issues; the next will focus on what NCUA is doing to help credit unions address cyber threats.
Patrick Keefe, NASCUS Communications, email@example.com or (703) 528-5974