WASHINGTON – NCUA is asking Congress for vast new authority to prevent a further meltdown of the credit union system.
The agency, facing an estimated $6 billion cost so far to stem the spreading crisis, has asked Congress for the same power held by the FDIC to allow it to act to stop systemic risk. Such broad powers would enable NCUA to bypass the normal administrative procedures used in passing new regulations in time of crisis. It would allow the credit union regulator, for example, to put the entire corporate credit union system under conservatorship or extend the variety of short-term programs recently enacted on a permanent basis.
With its current authority, NCUA must work on a case-by-case basis, dealing with individual problem credit unions as they come along, NCUA Executive Director David Marquis told Congress during testimony before the Senate Banking Committee last week. But the current economic crisis is spreading risk throughout the credit union system, said Marquis. "In order to quickly and effectively respond to such circumstances, the NCUA needs authority to take action in response to systemic risk," he said.
Marquis’ remarks came the day before NCUA took over U.S. Central FCU and WesCorp FCU, the two biggest credit union failures ever.
As the corporate credit union crisis began to spread last winter, Marquis said NCUA was limited in its response to temporary actions, like its voluntary guarantee of corporate deposits, which was only enacted systemwide after most of the corporates volunteered to participate. "The final outcome of this less-than-100% participation remains to be seen," said Marquis.
Marquis also said NCUA was prevented from guaranteeing all business checking accounts, even as the FDIC was allowed to do for banks. "To implement this," the NCUA executive told the senators, "the FDIC employed its systemic risk authority, as the action included banks that were not in specific danger of closing, and the FDIC extended the guarantee to all banks on an involuntary basis." But NCUA, he said, lacked the authority to enact a similar program for credit unions.
"With regard to the corporate credit union concerns and the various guarantees," said Marquis, "the credit union system as a whole would have been better served if it had been able to employ a systemic risk authority. Still, because the corporate credit unions are a small universe, the (NCUA) Board was able to cobble together other legal authorities to work around the lack of systemic risk authority."
"However, the next time NCUA needs to take systemic action for problems that could occur within the universe of natural person credit unions, current legal authorities might be inadequate to address this much larger universe," he stated.
