Congress hasn't scrutinized the NCUA's handling of the problems at corporate credit unions very much.
That's about to change.
In the waning days of the last Congress, lawmakers approved a bill that gives the NCUA extensive new regulatory powers. But the bill also requires that the Government Accountability Office-Congress' investigative arm-take up to a year to investigate how the NCUA handled the corporate credit unions' woes.
The GAO doesn't have the power to punish the agency, but its findings could cause Congress to hold hearings and call for legislation to remedy any of the agency's perceived shortcomings. As part of the process, the GAO will interview officials of the agency and seek input from CUNA and NAFCU and probably representatives of the banking industry.
CUNA Senior Vice President and Deputy General Counsel Mary Dunn said the report presented "both opportunities and challenges. It will provide an important mechanism for key policymakers to evaluate how the NCUA has handled the failure of the corporates. This will include whether the assessments to federally insured credit unions to pay for the costs to the Corporate Stabilization Fund are distributed fairly over the time frame permitted, as Congress intended."
She also said the association will seek to prevent any additional regulatory burden for credit unions as a result of the report.
Although the NCUA's Office of Inspector General has already issued two reports on the failures of U.S. Central and WesCorp-which pinned blame on the NCUA and the executives and boards of the two corporates-the GAO will provide a fresh set of eyes.
The NCUA has conserved a total of five corporate credit unions.
NAFCU President/CEO Fred Becker also thinks that the GAO could challenge a key conclusion: that NCUA examiners didn't have adequate power to stop the corporates from making risky investments because the agency didn't have investment concentration limits in place.
"A regulator doesn't need it in black and white to tell you what to do if you are doing risky activities. Regulators have flexibility on anything relating to safety and soundness, regardless of what the regulation says," Becker said.
In 2002, when the agency issued a set of regulations on corporate credit unions, it rejected a proposal to place limits on the types of investments corporates could make. That is one of the reasons that NCUA Chairman Debbie Matz-who was a board member at the time-voted against them.
The NCUA issued a new rule last September that put concentration limits in place.
In a statement, Matz said she welcomes the GAO report as a "valuable complement to the Inspector General report on the corporate failures. NCUA and the credit union industry can and should benefit from a 360-degree assessment of the inadequacies that characterized the prior system, reforms that are being made, as well as additional ones that should be considered."
Becker noted that the severity of the financial crisis revealed the shortcomings of every government financial regulator and noted that "if you want to line people up for making mistakes, it will be a long line."
The GAO has dealt with credit union issues before.
A 2006 study requested by the House Ways and Means Committee concluded that "credit unions lagged behind banks in serving low- and moderate-income households." The report also concluded that "credit union executive compensation is not transparent."
Credit unions aren't usually high on Congress' priority list. When the Senate Banking Committee held an oversight hearing on credit unions in December, it was the first such session in five years.
During the 50-minute session, at which Matz was the sole witness, lawmakers cited the Inspector General reports about the agency's shortcomings in dealing with some of the failures of corporate and natural person credit unions.
Sen. Richard Shelby, the panel's top Republican, asked Matz if she thought credit unions would be able to remain financially viable in light of the increased assessments.
She said credit unions would be able to handle the impact, though it will negatively impact their ROA.
Sen. Kay Bailey Hutchison (R-Texas) praised the agency for not burdening the taxpayer when rescuing corporate credit unions.
Within six months of receiving the GAO report, the Financial Stability Oversight Council (of which Matz is a member) must submit a report to the House and Senate on actions taken and any recommendations issued to the NCUA.
Becker said he hopes the report will decrease the likelihood that people will forget about the causes of the financial crisis.
"History has a tendency to repeat itself, and it is basic human nature to forget," he said.