NASCUS' Fortney Discusses Challenges and Opportunities for State Regulators
Credit Union Times: What have been the highlights and biggest frustrations of the past year for you and for NASCUS?
Mary Martha Fortney: It is a priority of our NASCUS chairman and our board to improve branching capabilities for state-chartered credit unions. Federal credit unions can branch across state lines without restrictions while state credit unions can in some circumstances but sometimes face substantive hurdles.
Another thing that we consider as very positive is that the state-federal regulator relationship has continued to strengthen. Our cooperative relationship in 2008 was particularly effective. We have regular teleconferences with the NCUA and several in-person meetings where there is a regulator-to-regulator dialogue. They've tackled important issues such as credit union service organizations and interest rate risks. We look forward to continuing that.
NASCUS has long held that it is important to have someone with state regulatory experience on the NCUA Board and a former Illinois regulator [Michael E. Fryzel] was appointed and confirmed as chairman of the NCUA. He's the first one in a while.
Also, one of our goals was to offer more education and training to state-chartered credit unions. We had successful directors' colleges in Washington and Michigan, and in Michigan we turned people away. We want to have effective and informed regulatory agencies and credit unions.
Another big effort of ours has been capital reform. We are pleased that more and more people are talking about and are open to the idea. We have written to people on the House and Senate side, met with CUNA and NAFCU and Chairman Fryzel, Vice Chairman Hood and Board Member Hyland, who is our liaison.
I don't want to feel that there's going to be success, but I am encouraged that the dialogue has been elevated, especially since given the uncertain economic circumstances, credit unions should have access to supplemental capital. We know there are some concerns and certain conditions have to be maintained and it has to be properly structured. We don't want to lose the mutuality, member-owned cooperative nature of credit unions.
There must be proper safety and soundness regulations and proper regulatory oversight, of course. We think it can be done properly but are disappointed we haven't gotten Congress to focus on this yet.
CU Times: What impact will the new Congress and administration have on your agenda?
Fortney: Once we have an opportunity to explain the situation facing credit unions and how they fit into the financial system, I am optimistic that Congress will listen. I've met with the Obama transition team, and I will look forward to the opportunity to meet with Treasury Secretary-designate Geithner and explain the importance of dual chartering and other issues. I remain optimistic Congress will listen.
CU Times: Do you think that because the new administration and Congress will both be Democratic, it will make things easier for you? Some have said that Democrats understand credit unions and make better policy decisions about them than do their GOP counterparts. Do you agree?
Fortney: I am not sure I can tie it into a party kind of relationship. I know that when you look at the Blueprint put out by this administration's Treasury Department, there was a complete disregard for state authority and a complete disregard for the dual-chartering system. We joined others in expressing our views, which we thought were very well reasoned, to Secretary Paulson, and they were dismissed.
We look forward to working with the new administration and Congress, some of whom I've worked with for a number of years in helping them understand what's necessary for credit unions and state regulators.
CU Times: CUNA and NAFCU are adamant about having a regulator just for credit unions. What are your thoughts?
Fortney: We are concerned that Treasury's proposal could influence Congress to remove a dual-chartering system and eliminate a separate regulator for credit unions and bring state-chartered credit unions under federal supervision. When Secretary Paulson released his report we came right out in strong opposition.
CU Times: When Paulson's plan was unveiled, House Financial Services Committee Chairman Barney Frank said that having one regulator for all financial service providers was dead on arrival. What has he said to you, publicly or privately, about the dual-charter system?
Fortney: For credit unions, not specifically. But he has led the charge against the preemption of state authority on banking regulation by the Comptroller of the Currency. And I know that he and the state regulator in Massachusetts have historically had a very good relationship. He has also been clear that credit unions didn't cause the problems that helped trigger the economic situation.
CU Times: Back to dual chartering, you raised concerns about some of the changes the NCUA wanted to make in the examination schedule. Any other areas of disagreement you've had with them? Where would you like to see the agency be more responsive to state regulators?
Fortney: We are sometimes concerned about how the regulations for federally insured, state-chartered credit unions are presented. We would love it if they reorganized their rules so that the rules [that cover all federally insured credit unions] are in the same section of regulations.
NASCUS and NCUA have a document of cooperation of how state regulators will work together. It outlines a system of discussions but also ensures that the insurer can exercise its authority and do its oversight. There may be some disagreements, but overall the relationship is positive and works well.
We often remind NCUA of their distinct roles as insurer and as regulator. We want a strong regulator and one that administers the insurance fund the right way.
CU Times: Credit unions, like all other sectors of the economy have been hurting. One way the government has tried to provide relief is through the Troubled Asset Relief Program where have you come down on credit unions having access to it?
Fortney: We wrote Congress and said, 'you need to include credit unions.' It should be an option.
Another issue, I should have mentioned earlier, is our being at odds with the Internal Revenue Service over the unrelated business income tax. The unilateral determination of what is traditional business for state-chartered credit unions without considering how banks have changed concerns us. We remain optimistic that the lawsuits will have a positive. The hearing on the Wisconsin lawsuit is scheduled for May and the Colorado lawsuit hearing is scheduled for August.
CU Times: Are their issues that your members are seeing that they convey to you and prompt you to wish lawmakers would address those concerns?
Fortney: There hasn't been anything like a Bear Stearns or AIG to give Congress pause from the credit union perspective. State regulators respond to their governors and constituent requests and I know there are states like California, Florida and Nevada where there are lots of foreclosures where state regulators are talking regularly to governors and others to deal with the situation.
CU Times: What are members seeing in their examinations that are causing concerns?
Fortney: It varies by geographic area. They are looking at home equity lines of credit. And as you know, earnings are down, and that's something state and federal regulators are watching. Also, they are monitoring how credit unions are doing due diligence and the increasing number bankruptcies. Many of our members also regulate banks and in their banking universe, which I won't talk about, there are some areas that banking regulators are watching. We have quarterly teleconferences with our regulators and biweekly phone meetings between our regulators and NCUA officials to talk about issues as they come up.
CU Times: In light of the economy, are you optimistic about the health of credit unions and about the system under which credit unions are regulated?
Fortney: I am optimistic, but then regulators worry, too. They kind of go hand in hand. We are celebrating the 100th anniversary of the first state authorizing act. I believe credit unions will still be around in 100 years, but I do believe we need some things to make them healthier. We need capital reform. We need to be sure [credit unions] can provide what their members are asking for. We are watchful of preemption of state authority and elimination of dual chartering. It's always good to be mindful of efforts to pass things in Congress that would ultimately seriously disadvantage the credit union system.
CU Times: Some have said that in recent years, the Treasury Department has been biased toward the big investment banks and big commercial banks at the expense of community banks and credit unions. Do you agree with that assessment and, if so, do you see that changing?
Fortney: They will always be at a disadvantage since credit unions account for 6% of 7% of the financial system. And while you have really large ones like Navy Federal with billions in assets, you have others that have thousands of dollars in assets.