by J. Mark McWatters, NCUA Board Member
This new year will bring many changes for our nation. However, one thing that has not changed is the need for regulatory relief.
In my view, NCUA and the other federal financial institutions regulators have an ongoing obligation to consider compliance burdens and the costs our institutions shoulder on a day-to-day basis. We must work to eliminate needless regulation, as permitted by law and consistent with our safety and soundness mandates.
The duty to update and streamline rules—a process that can foster safety and soundness as well as cost-effectiveness—can be as significant as implementing new rules and setting supervisory requirements and guidance for regulatory relief. Executive Order 13579, issued in 2011 to independent agencies such as NCUA, reinforces our critical and fundamental role in that regard.
In a bipartisan manner, the NCUA Board has diligently and thoughtfully worked to implement regulatory relief while taking into full account our role as a prudential regulator and the limits imposed on the agency by Congress under the Federal Credit Union Act and the Administrative Procedure Act.
The primary role of a safety and soundness regulator—such as NCUA, the OCC, and FDIC—is not to promulgate new regulations. It is, instead, to use the authority Congress granted the agencies to safeguard the institutions they oversee, which in turn will serve to protect the accounts of consumers and small businesses, as well as the federal share and deposit insurance funds. This may require new regulations, but it also may necessitate revising or minimizing existing rules, while always remaining mindful of all legal requirements.
Of course, Congress often requires agencies to write specific rules, such as provisions in the Federal Credit Union Act that direct the NCUA Board to implement member business lending authority and to determine field-of-membership criteria. Whether initiated under general supervisory authority or to meet a specific congressional directive, rules are necessary and, in the case of federally insured credit unions and banks, inescapable.
However, rules should not be static and set in stone. The need for a particular rule often changes, and a key provision today may become unnecessary over time or even counterproductive.
Regulators must recognize that rules should prevent or correct potential problems without unduly impeding the viability of those who must comply. To accomplish this, regulators must focus, review, update, replace and eliminate rules to fit relevant circumstances, while meeting statutory requirements in an objective and transparent manner.
NCUA is certainly not the only agency looking for ways to curtail the regulatory burdens of the entities it supervises. Like credit unions, community banks and their representatives have sought regulatory relief from Congress, and their regulators and policymakers have acknowledged those concerns.
Federal Reserve Board Chair Janet Yellen has testified that the Federal Reserve “recognize(s) how high the burdens are on community banks, and for our own part we are heavily focused on trying to tailor our regulations.” This practice is likewise the FDIC’s approach (opens new window).
According to an April 2015 study by the Congressional Research Service, “An Analysis of the Regulatory Burden on Small Banks,” regulators tailored 13 of 14 key rules recently issued to address operational burdens of community banks; some of the rules cited affected credit unions, as well. More recently, Chair Yellen testified that the banking regulators are looking at ways to simplify capital requirements for community banks and, like NCUA, the federal banking regulators are also working on improvements to Call Reports for smaller financial institutions.
Regulators may not ignore or decline to meet congressional expectations to avoid issuing new rules or to lessen regulatory impact. However, given the significant number of rules imposed in the last eight years on federally insured financial institutions in response to the recent financial crisis—even though credit unions and community banks did not cause the crisis—regulators have a responsibility to consider lawful, reasonable and meaningful regulatory relief. This is certainly true for credit unions, but no less true for community banks.
In 2017 and beyond, NCUA will work diligently to accomplish our statutory mission to supervise federally insured credit unions, maintain the safety and soundness of the credit union system and protect the National Credit Union Share Insurance Fund from losses. Yet, the credit union system and the Share Insurance Fund will not be as strong as they can be if credit union growth and development are impaired by undue regulatory burdens. Where Congress permits, NCUA should revise its rules as necessary and appropriate.1
The NCUA Board must continue to implement meaningful regulatory relief to the extent permitted under the Federal Credit Union Act and the Administrative Procedure Act so as to eliminate unnecessary regulatory burdens. Our recent modifications to the member business lending and field of membership rules serve as regulatory relief issued in accordance with applicable law.
1A number of rules that apply to credit unions under the Dodd-Frank Act are implemented by the Consumer Financial Protection Bureau.