ALEXANDRIA, Va. -- The Government Accountability Office's study on NCUA's independence as a regulator has not garnered the attention of the one on credit union service to those of modest means, but it too has a story to tell.
After House Ways and Means Committee Chairman Bill Thomas (R-Calif.) questioned whether NCUA could objectively gather information on credit union service, he asked the GAO to look into objectivity controls at the agency in addition to its parallel study of credit union service to persons of modest means and executive compensation. GAO found many of the same things in place at NCUA as it did at other similar regulators.
"NCUA has a number of controls and procedures in place that address independence and objectivity of board members that are similar to those at the six other financial regulatory agencies we reviewed," the report read. "Generally, the primary controls for addressing independence and objectivity at all of the agencies are based on the statutory criteria for individual qualifications and composition of the boards and commissions as well as rules promulgated by the Office of Government Ethics." The report compared NCUA with the Commodity Futures Trading Commission, Farm Credit Administration, the FDIC, Federal Housing Finance Board, the Board of Governors of the Federal Reserve System, and the Securities and Exchange Commission.
Things like qualifications for board members were included in these. Schedule C appointee usage was generally the same, though GAO noted that four of NCUA's Schedule Cs were formerly associated with CUNA.
However, GAO noted, "Unlike NCUA, five of the six other regulators have additional controls and procedures that address independence, including agency-specific rules that address conflicts of interest and independence, or the recognition of the importance of independence in the agency's mission statement or values written in their strategic plans...With respect to our recommendations, NCUA stated it was not opposed to adopting agency-specific ethics guidelines or including independence and objectivity as part of its values and mission in future versions of its strategic plan."
Specifically, GAO said NCUA could adopt independence and objectivity guidance similar to FHFB's Standards of Conduct that require an arm's length relation with industry or including independence and objectivity as core values in the agency's strategic plan, similar to FHFB and the Federal Reserve. "By adopting one or more of the practices that the other regulators use, NCUA would reinforce the message that independence and objectivity are enduring and achievable values and goals for all staff, whether they are board members, career staff, or Schedule C appointees," GAO stated.
GAO also reiterated its 1991 suggestion that Congress increase the NCUA Board from three to five members, similar to the change at the FDIC in 1989. The report remarked that, "some academic and industry sources suggest there should be a minimum of five members on a board of directors to help maintain independence, retain needed expertise, and enable continuity of leadership. Further, some of NCUA's board members told us that having a three-member board sometimes made communicating among the members complicated because of the Government in the Sunshine Act, which largely limits nonpublic meetings of the majority of the board (in this case, two board members)." GAO also noted that NCUA's responsibilities have grown over time.
NCUA again opposed the move to expand the board, estimating the costs of adding the two board members and their staffs to be at least $1.1 million a year. The agency said its increasing responsibilities were being handled by "maintaining an adequate expert field staff, and that the three-member board was more than adequate to perform the board's role in establishing safety and soundness regulations and policy."
GAO responded, "While we acknowledge there would be some financial and potential efficiency costs associated with increasing the board size at NCUA, we continue to believe it would be worthwhile to review the potential benefits an expanded board may provide."
NAFCU, too, questioned the cost/benefit analysis. "With respect to the NCUA's independence as a regulator, NAFCU would note that it has a longstanding policy in support of the agency's current structure of a three-person board," NAFCU President/CEO Fred Becker said. "NAFCU believes the NCUA's comments in the report--noting the additional cost (in excess of $1 million) of adding two seats to the board--quite persuasively make the case for retaining the current three-person structure rather than assessing credit unions the cost of adding two additional board members."
Chairman Thomas commented, "The GAO findings also indicate that the NCUA should adopt practices employed by other financial regulators to enhance the independence and objectivity of the NCUA. These reports present sound recommendations and I encourage the NCUA to adopt GAO's recommendations."
CUNA Deputy General Counsel Mary Dunn also pointed out that, "There is not one example where NCUA is cited as being too close to the industry." --scooke@cutimes.com
