Amidst good news, NCUA has new challenges
How quickly things can change for the high-profile regulator of federal credit unions and the insurer of all federal and most state chartered CUs. Most recent NCUA/NCUSIF headlines have all been of the good news variety starting with the elevation of popular Dennis Dollar to chairman and the addition of two new fresh faces (with no axe to grind), Deborah Matz and JoAnn Johnson, to the NCUA Board. Then there were all the positive vibes generated by RegFlex (59% of CUs qualified), Access Across America, the millions of low-income individuals who became eligible for credit union membership, the speed with which community charters and FOM additions were approved, and the elimination of the controversial Community Action Plan. Also, the relatively good numbers on the insurance fund, at least in comparison to the FDIC. Although credit unions were told not to expect a dividend, it looked like they would not have to pay a premium. Banks are not expected to get off without one. However, NCUA and NCUSIF have been making different types of headlines the past several months. The ongoing concerns over the OTR (overhead transfer rate) and PCA (prompt corrective action) continue to come up as credit unions relay their dissatisfaction with both at every opportunity. The bad taste in the mouths of state charters has not gone away since the OTR was increased to 62%. And the recent influx of funds fleeing the stock market has made meeting PCA ratios much more difficult. The NCUA annual budget, despite announced reduction goals, continues to be a topic of discussion, too. This is especially true since the agency's top staffers' hefty salaries were revealed and found to be higher than similar but larger regulatory agencies. Meanwhile the total number of credit unions (9,814) that need supervision and insurance continues to drop rapidly because of mergers and liquidations. Although charter conversions have slowed somewhat, the concern remains as large credit unions continue to switch from federal to state charters. Then there is that still small but gradually growing number of credit unions that take that next step and convert to a thrift charter and in a few cases, eventually to a stock-ownership bank. If all of this good news/bad news weren't enough on the NCUA plate, in the last couple of weeks they have been served up with a union issue and a private insurance conversion development. First the union issue. When employees of any organization are receptive to becoming unionized, that is usually a sign of some dissatisfaction. Think about it. NCUA proudly announces that it intends to reduce staff and staff expenses. Translation: good for those paying the freight; bad for those who make their living as an NCUA employee. The decision on how annual increases would be administered (half of the pay raise as a lump sum bonus) to hold down annual salary costs and pension benefits? Same translation. NCUA staffers are complaining that their compensation plan is unfair and that they are receiving unequal treatment from supervisors, especially when it comes to promotions. Serious stuff! Enter the National Treasury Employees Union. NTEU has a track record with other federal regulatory employees. It organized the FDIC employees and is currently at work on the Office of the Comptroller of the Currency. This development has to be a blow to NCUA Chairman Dollar who has almost uniformly received high marks across the board during his time on the board but especially as chairman. A union would naturally push for better pay and benefits and job protection and advancement policies more to their liking. The employer, NCUA, has promised its customers - credit unions - lower costs and a reduction in staff. A collision course could be developing. Now the private insurance development. All but about 400 credit unions have federal insurance. It is mandatory for federally chartered credit unions. Over the years, a number of state chartered CUs have pulled up stakes and gone the private insurance route. Not excess insurance, but primary which is not allowed in all states yet. By so doing, these credit unions no longer have any connection with NCUA/NCUSIF. They are examined only by state regulatory authorities not by federal and state as is the case when a state CU has federal insurance. No big deal, that is, until $2.8 billion (and growing fast) Patelco Credit Union in San Francisco decided to say goodbye to federal insurance. By so doing, Patelco became by far the largest credit union to ever make the switch to private insurance. Interestingly, the final approval, after Patelco members OK'd the action, was made at the regional level by NCUA, not at a board meeting. Patelco reportedly has approximately $12 million in the fund which will have to be refunded. Yet, this didn't make it on to the regular NCUA Board agenda along with a number of far less important items. Uncharacteristic of Dollar, he has so far been mum on the subject while Board Member Deborah Matz has actually been somewhat outspoken on the situation. These discussions have led to related conversations as diverse as the possible impact on state regulatory agencies and their state funding, and a challenge to show where it says that federal insurance really is backed by the full faith and credit of the federal government as long claimed. The switchover has raised some interesting questions, too. Aside from its prepared statement, are there other reasons why Patelco switched? Will other large state chartered credit unions follow? What will the outflow of funds do to the required ratio? Could a premium be in the wings in the near future to make up for the departing dollars? I'll have a lot more to say about Patelco switching to private insurance in a future column. Meanwhile, it is clear that NCUA's already full plate is getting fuller and everything on it is not necessarily healthy fare. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail email@example.com.