NCUA is raising the transfer rate and lowering the fees of the federal
credit unions paying their federal regulator. It's time to pull
back the veil of the NCUA and its actions.
For one, the recent moves of the NCUA appear to be a scheme to reward
federal credit unions for staying with their federal charters and
penalizing those who opt out of the federal charter for a state
one. Odious as this sounds, it smacks of a divide-and-conquer tactic
to keep the federal and state credit unions that have federal share
insurance at seeming odds one with another and thus incapable of
uniting in a challenge to what the NCUA is doing.
credit unions may now feel it is in their best interests to retain
their federal charters for the financial incentives dangled before
them by the NCUA; state-chartered credit unions may resent federal
recent moves by the NCUA may very well work. The reaction among
credit union managers so far has been, ''I have bigger things
to worry about.''
problem is that the NCUA has gotten out of hand and the ''I
have bigger things to worry about'' attitude has gone on for
far too long, more than a decade anyway.
unions and the Congress were both asleep when NCUA increasingly raised
the overhead transfer rate and increasingly operated a regulatory
function with money meant instead for insurance losses.
It's time to take a hard look at the NCUA and what it has been doing.
It was founded as a regulator and it had this function long before
there ever was an insurance fund. What are they really doing now,
with the presence of an insurance fund, that they were not doing before
the insurance fund was created? Very little. But it is in the name
of the insurance fund that they tap into NCUSIF income to pay for
67 percent of NCUA operating expenses.
Who are they kidding? How did they ever get along before they had
an insurance fund into which to tap?
Both Types of Credit Unions Lose
The really sad part of the potential enmity between the federal and
state credit unions owing to differing financial treatments is that
both sides lose. They both lose dividends earned on their fund (that
is, earned on their own money) and otherwise returned to them for
their members were it not for the NCUA taking those dividends instead
to underwrite its operations.
When the NCUSIF was set up, everyone agreed that, owing to NCUSIF's
make up and method of funding, a dividend would very likely be returned
in every normal year and even in most abnormal years. But increasingly
that dividend is being eaten up by the agency's transfer rate. Our
estimate for the coming year is that credit unions contributing to
the NCUSIF would lose on account of the transfer rate in excess of
$80 million, or over $1.00 per member.
Credit Union Capital at Risk
That's bad enough, but there is more here than merely missing a big
deposit check because a dividend is not being paid by the NCUSIF.
The NCUA has spent $250 million of fund money over the last five years
owing to its transfer rate dippings, and that was at a transfer rate
of 50 percent, not the prospective 67 percent. These have been years
of no or very little insurance losses.
Thus the way I see it, the only real threat to the insurance fund
lately and presently is the NCUA itself. The credit unions have been
doing just fine. It is not they who are drawing down the insurance
fund; it is the regulatory agency.
Now carry this one step further. The fund is a copious source of funds,
in fact, of all of the capital accumulated by all of the credit unions
that contribute to it. People forget that by law the fund cannot go
below 1% owing to the fact that credit union capital is pledged to
keep it to at least that level. Thus if the fund were whittled and
whittled by the transfer rate, credit union capital would begin to
flow into it. Sixty-four billion dollars of credit union capital is
thus pledged. Better watch your wallet.
The agency has slipped its leash. It sets its budget in secret executive
committee, it uses money meant for insurance losses to fund its own
operations, and it adopts tactics that pits one set of credit union
against another. The bells are ringing all over town. It's time we
all woke up, found out where the fires are and put them out.