NCUA Should Stick To Safety & Soundness

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This letter is in response to the March 3, 2008 editorial by JoAnn Johnson, chairman of the National Credit Union Administration, defending the agency’s ongoing rulemaking regarding the conversion of a credit union to the mutual savings bank charter. The editorial was titled: “Why NCUA Has Focused On The Rights Of Members As Owners,” (CU Journal, March 3).

Mrs. Johnson stated that this effort “runs counter to my philosophy of minimal regulation, preferring to remove burdens and enable credit unions to maximize service as long as a strong safety and soundness regime is maintained.” We agree that the regulations are both burdensome and contrary to free-market principles.

She also wrote that, “When I testified before the House Financial Services Committee in May 2006, I was faced with a potentially skeptical Congress that had been led to believe NCUA was being an overly bureaucratic and obstructionist regulator.” She failed to mention that the cause of this skepticism was the fact that members of Congress had recently learned that the NCUA had invalidated the overwhelming membership votes at two large credit unions because of the way a piece of paper was folded in the balloting materials.

More importantly, Mrs. Johnson’s editorial philosophizing on the ownership rights of mutual depositors failed to acknowledge that as an instrumentality of the federal government, NCUA has a responsibility to follow the law. In this case, the Congress set forth a very specific standard in 1998 that the NCUA regulations governing charter conversions must be “no more restrictive” than the charter conversion rules of other financial regulators. As it now stands NCUA charter conversion rules are 17 times longer and patently more restrictive than the comparable rules of the Office of Thrift Supervision and the Comptroller of the Currency. The pending rulemaking will most likely take this ratio up to 20 to 1.

One might also ask why there is no similar NCUA commitment to “member rights” when it comes to the regulations governing annual meetings or election of directors. Industry data show that annual meetings typically involve membership participation at levels less than .1%. No problems with “laissez faire” here.

The real cause of NCUA selective campaign of membership rights was made abundantly clear in the 2007 Aite Group Survey titled, “The Evolution of the U.S. Credit Union Market.” The survey revealed that 33% of credit unions over $100 million in assets are planning charter conversions to savings institutions, thrifts or banks. Head-to-head competition with banks, increasing demand for more sophisticated portfolios from members and other factors have caused credit unions to change their strategies, the report noted. Surviving today’s competitive marketplace requires flexibility and “in the case of credit unions, it also sometimes means expanding well beyond their roots,” said survey author Christine Barry.

Everyone appreciates the natural organizational instinct for self-preservation, but a government regulator, in concert with industry trade associations, should not be in the business of taking away the rights of individual institutions when these rights have been specifically conferred by the Congress.


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