​​Time to Focus on Smart Regulation

By J. Mark McWatters, NCUA Board Member

May 1 is Law Day. It is a day that commemorates the rule of law and the fundamental role the law plays in our democratic system of government and in our society. Faithfulness to the law is also fundamental to the existence of credit unions, to this agency and to the National Credit Union Share Insurance Fund. NCUA Board members can only fulfill their roles if they continually reassess and question whether agency actions are fully consistent with the Federal Credit Union Act.

May 1 also marks the beginning of a new transition for the NCUA Board. This process, which is contemplated by the Federal Credit Union Act, will be set in motion by the departure of the Chairman. The act not only sanctions such changes, but also provides for them, because Board members' terms are limited. It is unclear when a third member of the Board will be named, but the work of the Board and the agency will continue, as required by the Federal Credit Union Act.

This transition period for NCUA can mean more than the changing of the guard at the Board level. It affords us an opportunity to focus on what the Federal Credit Union Act means for the agency as a regulator and safety and soundness supervisor and to engage in "smart regulation," which avoids heavy handedness and tailors rules to correct outliers.

One example is the 18-month examination cycle for strong, well-managed credit unions. Whether there should be a 12- month, 18-month or another period for examination cycles should be decided by the NCUA Board. I do not find the arguments for delaying our consideration of this issue to be compelling. A longer exam cycle would provide real regulatory relief without jeopardizing safety and soundness. Based on what is being expressed to me by credit union CEOs, as well as data compiled by NCUA on the financial strength of the credit union community, a change in the exam cycle is an area that the NCUA Board should act upon.

As I have repeatedly stated, it's time—in fact it is overdue— for NCUA to not only review, but also rethink our exam appeals process. The process we have in place now is inadequate under the Federal Credit Union Act and inconsistent with legal principles of due process. It is weighted and structured to invariably limit credit union challenges from even occurring and to favor the agency when they do. The exam-appeals process needs to be addressed, and I will continue urging the agency to address this issue.

The House Financial Services Committee is reviewing certain capital standards for community banks. NCUA needs to watch this process very carefully as it unfolds, and the Board may need to reconsider our risk-based capital rule because of final changes in capital requirements for smaller banks. I dissented to the adoption of this rule because I found many aspects of it were not justified under the Federal Credit Union Act. As credit unions for the most part are thriving without the rule, I continue to challenge this action, and nothing has dispelled my very serious concerns about its impact when it takes effect in January 2019.

These issues are not new nor are they the only ones that the agency should be focusing on if we want to remain faithful to the Federal Credit Union Act. Among many other issues, the agency's budget remains out of line and must be readjusted to reflect regulatory relief priorities, and not the management of a crisis that does not exist.

The agency has much work to do to reconsider its proper role under the Federal Credit Union Act. As the NCUA Board transitions, there is no better time than now to consider smart regulation.