TIME TO FOCUS ON SMART REGULATION
BY J. MARK MCWATTERS, NCUA BOARD MEMBER
May 1 is Law Day. It is a day that
commemorates the rule of law and the
fundamental role the law plays in our
democratic system of government and in
our society. Faithfulness to the law is
also fundamental to the existence of credit unions, to this
agency and to the National Credit Union Share Insurance
Fund. NCUA Board members can only fulfill their roles if
they continually reassess and question whether agency actions
are fully consistent with the Federal Credit Union Act.
May 1 also marks the beginning of a new transition for the
NCUA Board. This process, which is contemplated by the
Federal Credit Union Act, will be set in motion by the
departure of the Chairman. The act not only sanctions such
changes, but also provides for them, because Board members’
terms are limited. It is unclear when a third member of the
Board will be named, but the work of the Board and the agency
will continue, as required by the Federal Credit Union Act.
This transition period for NCUA can mean more than the
changing of the guard at the Board level. It affords us an
opportunity to focus on what the Federal Credit Union Act
means for the agency as a regulator and safety and soundness
supervisor and to engage in “smart regulation,” which avoids
heavy handedness and tailors rules to correct outliers.
One example is the 18-month examination cycle for strong,
well-managed credit unions. Whether there should be a 12-
month, 18-month or another period for examination cycles
should be decided by the NCUA Board. I do not find the
arguments for delaying our consideration of this issue to be
compelling. A longer exam cycle would provide real
regulatory relief without jeopardizing safety and soundness.
Based on what is being expressed to me by credit union
CEOs, as well as data compiled by NCUA on the financial
strength of the credit union community, a change in the exam
cycle is an area that the NCUA Board should act upon.
As I have repeatedly stated, it’s time—in fact it is overdue—
for NCUA to not only review, but also rethink our exam
appeals process. The process we have in place now is
inadequate under the Federal Credit Union Act and
inconsistent with legal principles of due process. It is weighted
and structured to invariably limit credit union challenges
from even occurring and to favor the agency when they do.
The exam-appeals process needs to be addressed, and I will
continue urging the agency to address this issue.
The House Financial Services Committee is reviewing certain
capital standards for community banks. NCUA needs to
watch this process very carefully as it unfolds, and the Board
may need to reconsider our risk-based capital rule because of
final changes in capital requirements for smaller banks. I
dissented to the adoption of this rule because I found many
aspects of it were not justified under the Federal Credit Union
Act. As credit unions for the most part are thriving without
the rule, I continue to challenge this action, and nothing has
dispelled my very serious concerns about its impact when it
takes effect in January 2019.
These issues are not new nor are they the only ones that the
agency should be focusing on if we want to remain faithful
to the Federal Credit Union Act. Among many other issues,
the agency’s budget remains out of line and must be
readjusted to reflect regulatory relief priorities, and not the
management of a crisis that does not exist.
The agency has much work to do to reconsider its proper
role under the Federal Credit Union Act. As the NCUA
Board transitions, there is no better time than now to
consider smart regulation.
“This transition period for NCUA can mean more than the changing of the guard at
the Board level. It affords us an opportunity
to focus on what the Federal Credit Union
Act means for the agency as a regulator
and safety and soundness supervisor and
to engage in “smart regulation,” which
avoids heavy handedness and tailors rules
to correct outliers. ”
APRIL 2016 7
Our Cybersercurity Resource
Center has detailed
information and best
practices to help credit
unions be better protected. To learn more, visit http://go.usa.gov/Busd.