Creating a Fair and Balanced Approach to Regulation

by J. Mark McWatters, NCUA Board Member

As we begin a new year of challenges, a goal of the NCUA Board should be to look back and review the actions we have taken to determine if they provided "reg relief."

There are a number of examples of major NCUA regulatory requirements that were addressed or begun last year. The risk-based capital rule remains an unnecessary regulation that will burden covered credit unions, as well as the agency. Besides imposing higher risk-based capital requirements for well-capitalized credit unions, versus those that are adequately capitalized, covered credit unions will have to maintain a capital plan and be subject to examiner demands for even more capital than the rule requires. Shifting regulatory limits to examiner discretion will only add to credit unions' compliance headaches.

As with the member-business lending proposal, I do not accept that we cannot provide field-of-membership relief without breaking the bounds of the Federal Credit Union Act. Meanwhile, NCUA has still not considered material improvements to the appeals process for exams, the agency's asset threshold for regulatory relief for small credit unions remains too low and the 18-month exam cycle for well-managed credit unions remains elusive.

Fair and balanced regulation should not be beyond the capacity of NCUA. To achieve that result, however, we cannot just label regulatory efforts as relief and commend bad rules when they are only marginally improved. Nor should we transform regulatory requirements into examination directives. The compliance burden will only be compounded by credit unions' uncertainty as to what they must do to avoid negative examiner reactions and examination findings.

NCUA has several carefully defined primary roles, as determined by Congress, which include regulating federal credit unions, supervising federally insured credit unions and overseeing the National Credit Union Share Insurance Fund. Yet, in studying the Federal Credit Union Act as I have, it is clear Congress also intended for the credit union community to grow, allowing consumers and small businesses to have financial options in addition to banks and thrifts.

From a performance standard, 2015 was a good year for credit unions. Yet, we will never know how much better it could have been without the growing regulatory burdens credit unions face.

To execute the language and purpose of the Federal Credit Union Act, NCUA must reconcile its legal obligations to support safety and soundness, while staying out of the way of credit unions that manage their operational risks as they respond to members' needs. This is what the Federal Credit Union Act directs.

If we continue to operate under the principle that problems within a few must be corrected by new regulations for all, most credit unions will continue to be needlessly punished and the agency's scope and budget will always grow. If instead, we focus on how well risks are anticipated, mitigated and contained—both at the agency- and system-level—credit unions that address their risks well will have added flexibility to serve their communities, and the agency will have more resources, without exacting more funds from credit unions, to address material safety and soundness issues.

Like every worthwhile endeavor, refocusing NCUA's approach needs a plan to maximize the agency's success. That is why I have been talking with credit union officials and using their input to develop a blueprint for supervision that is truly balanced, consistent with the directives of the Federal Credit Union Act. You will be hearing more from me on this throughout the year.

I believe 2016 can be a year in which burdens are reduced, but we must not delay in improving how we regulate and supervise, so that when we say regulatory relief, credit unions will actually experience it.