Who Regulates the Regulator?

NCUA seems not only at cross purposes with credit unions, but completely out of touch with the dominant priorities of the Administration.


NCUA’s three board members will soon make their annual appearance at CUNA’s GAC.  Board member presentations are normally positive, proclaiming the shared goals of a strong cooperative system for America and urging credit unions to participate in whatever comment period, study, or “town hall” is on the agenda.  Everyone is polite. Then the board members return to their home “turf” to act.  Unfortunately when looking back at their 2009 presentations  their deeds do not align with their words.

One might explain by asking whether we should expect anything other than a “political” speech at such an event? Absolutely! These Presidential appointees are directly responsible for policy consistent with national priorities. I believe credit unions both expect and deserve something more than polite rhetoric.  Here’s why.

A “Dream Team” Board

The current board members’ resumes are compelling in terms of their experience and qualifications.  They fit to a tee the statutory requirements for the board.  Two are lawyers.  Two have extended credit union regulatory experience at the state and federal level.  Two have worked directly and recently in credit unions.  One has led a credit union trade association. 

All are experienced in the political “arts.”  One led Obama’s transition task force for NCUA.  Each has navigated the vetting process and has well-placed sponsors. All are able speakers albeit with very different personal styles.
On paper these qualifications would seem to make this an ideal group to be leading NCUA at this transformational time in financial services.  

However, as listed below, NCUA seems not only at cross purposes with credit unions, but completely out of touch with the dominant priorities of the Obama Administration –whether Republican or Democratic.

Why the Three-person Board was Created

For the first eight years, the independent NCUA was led by a single Administrator appointed by the President.   The first,  in 1970, was General Herman Nickerson, followed in 1976 by C. Austin Montgomery.

In 1978 the Federal Credit Union Act was amended to create a three-person board, appointed by the President, subject to Senate confirmation, of which only two may be of the same party.  By law, the President designates the Chairman.   Why was this change made?

Modernization and alignment with other regulatory practice was a factor.  However, a major concern of credit unions was that the power, processes and leadership of the Agency was vested in a single person.   The revised Act states that those chosen should represent the “public interest.” The check and balance is that at least one of the board members must be of a different “political party” from the other two.  Power was to be at least partially dispersed.  Dispersed, that is, if board appointments didn’t just become sinecures for the politically well-connected.

The Public Interest and NCUA’s Misalignment

During the past two years of the most serious financial crisis in 80 years, NCUA actions have been at odds with the dominant policy goals of both Republican and Democratic administrations.  For example:

  • After the increase of CLF funding to $41.5 billion was approved in the fall of 2008, credit unions individually and collectively sought help to meet homeowners facing economic hardship.  They were turned away.  During the worst months of the credit crisis, as credit unions increased lending quarter by quarter, the CLF went unused although there was a specific statutory authority for assistance with “protracted credit” loans.  This was at a time when the Administration’s number one policy priority was to restore retail credit markets, especially for beleaguered homeowners. 
  • CLF loans were not made available to corporates that requested lines of credit.  In the fall of 2008, individual corporates were told the CLF was not available during the panic that froze wholesale credit in every global market.   Yet, six months later (March 2009) the CLF loaned $ 10 billion to WesCorp and US Central after they were conserved. 
  • Both Republican and Democratic administrations made capitalizing financial institutions through the Treasury’s Capital Purchase program a central initiative in their efforts to restore normal financial market functions.  So far, 672 banks have received more than $230 billion in capital assistance.   Credit unions capitalized their own insurance fund to have the resources on hand to do just this.  This assistance has occurred numerous times in prior economic downturns.  Yet the NCUSIF with almost $10 billion in cash at the US Treasury has yet to advance the first dollar in capital assistance to the owners who funded this source of cooperative capital.
  • At a time when capital was needed to allow credit unions to continue to make more loans, the NCUA Board voted in August to assess an insurance premium of $750 million even though the NCUSIF fund balance, using the staff’s numbers, was well within the 1.2-1.3% normal operating level.  This expense, taken out of earnings and capital, could have supported over $10 billion additional loans on credit unions’ balance sheets.
  • When the  Obama Administration was deciding the potential capital needs of the 19 largest bank holding companies, the OCC, Federal Reserve, and FDIC published full details of the stress test methodology and the results for each institution.  In contrast, when NCUA asserted that the corporates had unrecognized losses in the billions, it would not release its model or assumptions.  To  justify its estimates the Agency turned to outside “experts” such as PIMCO and Clayton.  But it would not release either the assumptions or details used to “confirm” its own estimates.  It then told credit unions to expense these estimates immediately.

Other examples where NCUA actions contradict the Obama Administration's policies are abundant in areas such as transparency and expenditure control.   But even more worrisome is the Board’s failure to comply with the statutory deadline of “not later than April 1” for its annual report to Congress and the President or the law’s requirement that “the financial transactions of the Administration (NCUA) shall be subject to audit.” The December 2008 audited accounts of the agency have yet to be released.  Can the Board just ignore the law when it is not “convenient” to comply?

In both policy and practice the Board has not been in compliance.

Why Has the Board Not Fulfilled its Role-What Happens Next?

Credit unions were authorized by Congress to be a counter-cyclical force, especially in times when other sources failed to provide credit.  That is why the cooperative charter is tax-exempt. Credit unions’ extraordinary efforts in the past 24 months are increasingly the subject of press stories and televised commentaries.  Yet NCUA still has done nothing to change the policy misalignments that would allow credit unions to meet pressing member needs and public priorities.

Has the NCUA Board abandoned its public interest responsibility?  Has the Board become merely spokespersons for the staff?   Does the Board have the ability to define and set policy consistent with both credit union precedence as well as the elected Administration’s priorities?   Where is their legal judgment when the Board has clearly not complied with the law’s reporting and auditing requirements?  In sum, are members able to fulfill the governance requirements of an independent Board?

The FCU Act states that “the management of the [NCUA] Administration shall be vested in the Board.”    The Office of Corporate Credit Unions has summoned the corporates to meet at NCUA headquarters on Friday, Feb. 12.  The purpose of the meeting has not been stated.  Is this where the Agency will announce to the corporates how, in the words used at the Orlando town hall meeting, it “intends to make the legacy assets disappear?”  Or will it be how, in the words of another staff person, the Agency describes the process by which we can “assume the isolation of the legacy assets?”  Will a board member be present to confirm how this “plan” to use billions in credit union funds is going to be spent?  Who indeed is “managing” the Agency?   Is it the Board?

Governance by the NCUA Board involves both Agency management (by statute) and oversight to insure the public interest is met.   If this cannot be accomplished with this “dream team,” then perhaps it is in credit unions’ interest to craft a new approach to the regulator’s duties in a cooperative system.  Or at least, raise this record with those to whom the Board is statutorily accountable.  Perhaps that should be the top priority as credit unions go to Capitol Hill at the GAC with their messages.      




Feb. 8, 2010


  • Simply stated, in my view the NCUA Board has been "merely spokespersons for the staff" (in fact, a core cadre of long-term senior staffers) pretty much 100% of the time during my 30+ years in the Credit Union movement.

    We are far less likely to be surprised or confused by NCUA statements and actions if we start from that assumption, particularly once we become even somewhat familiar with the beliefs those core senior staffers hold about what the Credit Union movement "should be" and how it "should act."

    Continually fascinating is the fact that these bureaucrats never make any effort to hide their opinions on these central questions, and that they see no conflict in holding such opinions - let alone in continuously working to enforce their views on the co-operative and diverse collection of credit unions over which they hold regulatory AND deposit insurance authority.

    But then, why would they? As far as they are concerned the NCUA board fully meets with the theme sung loudly last night by tens of thousands of the kinds of Americans that ultimately foot the immense bills born of these staffer's hubris...

    "Meet the new boss - same as the old boss!"
    Long Time Credit Unionist
  • I think the most alarming thing is the lack of regard for the law the Board and Staff have demonstrated by not publishing their annual report. How bad must this report be to hide it from the public. Can't credit unions demand this report? After all, this is our money that supports the NCUSIF. Then again, if the true financial status of the fund is made public, we would have no alternative but to relinquish all our capital to fund the NCUA's mistakes and the industry could disappear.
    Concerned CEO
  • The senior NCUA staff and most assuredly their Regional Directors are delibertly misinterpreting our long standing NCUA regulations. Whenever an intrepretation or clarification of a Regulation is requested, invaribly the NCUA or Regional Director offers a reactionary position that negatively affects CU options.

    NCUA does not want CUs to modernize, grow, and compete. They want CUs to regress to a local, site specific, limited member based, financial institutions. This is not what our members have said they want and need. Do much for NCUA leadership and support!
  • I disagree that this board seems at odds with the Obamaadministration, just the opposite. They use the same style and philosphy; heavy handed my way or the highway actions.
    David Proffitt
  • It is a sad day indeed when the actions of a few are so important and yet they are not held accountable. When will the people stand up and demand accountability?
  • As a former NCUA employee who is familiar with some of the players I can tell you they are winging it. The brain power is not there and they only reaction to problems rather than trying to get ahead of them. It has been that way for a good while and unless the NCUA Board starts listening to others we are doomed. Where is the “plan” to get us out of this corporate mess? The reality is there is no plan other than the legacy asset will come back in value and the losses will not materialize. Right!!! We deserve better
  • Could someone please force NCUA to release their annual report for 2008 at the GAC? I think someone should ask the question and then continue asking until an apprpriate response is heard. If not we should all ban NCUA from our CU's by not recognizing their authority. Are they above the law?
    GAC attendee
  • Like all of us, NCUA has not and was not prepared for the economic situation we find ourselves in. They sit on the bus, looking backward at what has been, building spreadsheets, and in many cases, dispensing incorrect/incomplete advice. It is sad. NCUA offered no help to our credit union, and delayed decisions that actually caused harm.
    Tom Randle
  • I believe the NCUA strives to keep the NCUSIF at a high level to support the overhead transfer rate of income from the insurance fund to support their growing staff and expenses. Additionally, It is incomprehensible why the NCUA forces credit unions to shrink assets in order to raise their Capital Ratio. PCA solutions should include allowing credit unions the ability to safely and soundly grow as an alternative to shrinking. If a CU isn't growing it is slowly dying. The number of credit unions continue to decline. Are NCUA policies facilitating this trend?
  • I think comments #7 and #10 missed the point. This is about NCUA's actions, lack of transparency, disregard for what is in the best interests of individual credit unions and the system as a whole--regardless of your political philosophy. Stay focused people.
  • I agree with comment #7. It is in the best interest of credit unions that the movement-industry stay as far away from the Obama Administration as it can. They don't have a clue about running the government, and no one should want them to become deeply involved in the credit union world, because even so-called Conservatives don't understand credit unions and few have been good friends.
    Wendell Fountain