Q&A With Dollar On Letters, PCA And More
In keeping with the interactive nature of CUNA's Future Forum here, NCUA Chairman Dennis Dollar offered no prepared remarks and instead responded to questions from the audience on the value of comment letters, risk-based PCA, and more. Below is a look at the Q&A:
Q: How important are comment letters, and how does CU feedback compare to that from banks.
A: It's very valuable. When we passed Reg-Flex, the 1,500 letters we got-incredibly in favor of something rather than being against it-that really helped to persuade one of the board members who was not 100% committed. Certainly in the FOM arena the comments have helped us to shape the regulation in ways that make it more effective. We saw something in the FOM rule this year we had not seen in the past. We seldom hear from bankers themselves; this year, when we put out the FOM Manual, we received almost 500 letters from individual banks. I think what you're seeing is that even your critics are copying your strategies. I think it's healthy to hear from those who disagree; but I think it's more critical to hear from those who are impacted by them. The one thing I would do differently now in looking back at my career as a credit union leader is that I would write more comment letters.
NCUA is sometimes viewed as a scaled-down version of the IRS; someone you don't want to really have contact with unless you have to. But I've been able to reshape regulation as the result of comment letters.
Q: Would you comment on your proposal on risk-based PCA?
A: I first broached this issue at GAC this year. I'm under the impression that Congress' well-intentioned PCA rules as part of HR 1151 is not approaching what was intended. We want to make sure that when problems arise that NCUA doesn't wait too long to take action. The problem is that the way the reg was written that you must have 7% capital, regardless of the risk profile of your credit union. The problem with the present PCA law is that until you fall below 7%, the assumption is that everything above 7% is fine. From a regulators' point of view, the problem is that those of you who make sound risk decisions, you get no credit for that. You are considered just as well-capitalized as those who don't have their balance sheet as well constructed. My proposal is that we go to Congress and ask Congress to consider revising the PCA law and make it risk-based. I want to make it clear I don't want to lower the 7% to be well-capitalized; I think that's a good number. The problem isn't the numerator, it's the denominator. I think this is an issue with potential. I think there shouldn't be a one-size-fits-all criterion.
Q: Managers of small CUs don't have time to sift through proposals, so I use CUNA's Operation Comment. How important is volume vs. content?
A: Both are important. If you don't have time to shape a careful letter, it is still important to let us know how you feel, even if it's one sentence, "I don't think this is a good idea," or "This is a good idea." The numbers do allow us to sense the depth of feelings in credit union land.
Q: We visited your office two years ago and were unable to convince a credit union that was going to convert not to convert. The good news is the (now) bank president lost his job. The bad news is it's too easy to convert.
A: We are seeking comment on that right now. We recognize that members have a right to do what they want to do, including giving away membership. The 1998 Credit Union Membership Access Act preempted a former regulation that required at least 50% of the members to vote in an election to make sure it wasn't just a small group of people seeking to convert, often for the benefit of the small group. We know that a lot of those that convert from a credit union to a thrift do convert two years later to a stock-held institution. I hope someday Congress will return that to a regulatory determination, not a statutory determination. I do believe in this post-Enron environment that there is nothing more fundamental to corporate governance than the ownership of an institution, and if the members are going to vote on something that could result in the loss of ownership, that that is disclosed to members. I don't want anyone to misunderstand-I believe in the rights of owners of an institution to act as they see fit. But I also believe in the need to strengthen the disclosure provisions so they know what they're voting on.
Q: Comment on the new MBL reg, and what kind of investment options that offers to CUs?
A: As you know this was just finalized, so there's a couple of points I want to make. We were criticized for that action as if that was something new for credit unions. Credit unions have been authorized to make business loans since the passage of the Federal Credit Union Act in 1934. The passage of HR 1151 in 1998 did put some restrictions on member business lending. We have tried to address those issues that have been left to us (to determine) related to MBL. We're trying to make it easier on credit unions to determine their own qualifications. We also wanted to address diversification of loan portfolios, which is why we are convinced that participations with each other is crucial to credit unions to spread the risk. In doing so there was some question when putting out our original proposal, primarily from Treasury, that through participations we might enable some CUs to avoid the 12.5% cap. We didn't intend that and we have addressed that. When you're participating it is more so an investment than a loan, because we want to encourage that kind of diversification of risk. If a CU's own MBLs and its participations take it above the 12.5% cap, we want them to submit a plan to us for exceptions. I am convinced that MBL is a part of the future for credit unions. As we see the ability to do auto lending impacted by the 0% financing, and an upward trend in mortgage rates that might bring the refi boom to an end, credit unions need more diversity. Is it for all credit unions, no very credit union doesn't have the due-diligence in place. But it is right for many. And let me make this point: we've been talking a lot about Access Across America and serving the underserved. I believe if credit unions are to really make a long-term impact in these communities, we need to be more than an 18% alternative to a 100% payday loan. That's noble, but if we really want to make a difference, we need to make these MBLs in these communities.
Q: What about the future of supervisory committees? I know in our CU as we look at professional outside staffs and an internal auditor, we've found our supervisory committee is there in name only.
A: I personally think that supervisory committees are here to stay, it's part of the unique structure of credit unions. Just as credit committees have transformed and marketing committees have transformed, there's no doubt that supervisory committees will look to the professionals.
But I think having a place for members to go with a complaint or concern, and where we as regulators have a place we can go that is independent of management and the board, is an integral part of credit unions and maintain the integrity of credit unions.