It was the year 1909 when Pierre Jay, the first bankingcommissioner of Massachusetts, was successful in getting the firstcredit union act passed in the commonwealth. Many other statesfollowed suit, and then in 1934, the Federal Credit Union Act wasenacted, establishing a federal charter and a choice of charter forcredit unions.

Today, there are more than 7,000 credit unions, state andfederal, serving the financial needs of our nation's citizens.

The credit union system knows this history. NASCUS believes itis important to revisit it to remember that while working tomaintain the safety, soundness and viability of the credit unionsystem, essential elements of the movement's long and successfulhistory have been charter choice, dual chartering and diversity ofregulation.

When functioning properly, a balanced dual chartering systembenefits both the movement and the regulators. A properly balanceddual system fosters a constructive competition between state andfederal regulators and drives agencies to seek efficiencies andthink creatively about public policy questions. Regulatoryefficiencies and creative approaches to public policy are criticalto maintaining a viable, innovative system.

NASCUS and others believe this important balance provided by thedual chartering system may be at risk, and we must work to ensuredual chartering is viable and thriving, not at risk.

The NCUA has an important responsibility to protect theinsurance fund from material risk. In this capacity, it can be bothnecessary and proper for NCUA to promulgate rules of generalapplicability to all federally insured credit unions, regardless oftheir charter. However, the NCUA also has an obligation to the dualchartering system. In fact, NCUA's roles as both charteringregulator and as deposit insurer, unique among federal agencies,place a greater burden and obligation on the agency to protect thelegacy of the dual system.

NCUA's proposed and final rulemaking over the past 18 monthsconcerns NASCUS. Little in the proposals indicates NCUA is givingdue consideration and the proper weighting to its obligation to thedual chartering system. We are troubled about the impact of recentNCUA proposed rulemakings on state law, diversity and the health ofcharter choice for credit unions.

In spite of the fact that we shared some of the NCUA's concernsin these areas, we could not support the agency's CUSO, loanparticipation, or interest rate risk proposals. Certainly, NASCUS'sconcerns with these proposed rules were derived in part from theirsweeping preemptory nature.

However, our opposition was driven primarily by the fact thatstate regulators generally believed the proposals were severelyflawed from a supervisory perspective. In retrospect, it isunsurprising that a rule that unnecessarily preempts stateauthority also missed the mark from a supervisory perspective.

These proposals leave little flexibility for states to authorizedistinct powers for their credit unions, a disturbing trend toNASCUS with respect to the long-term viability of the dualchartering system.

When insufficient regard is afforded the necessary balancebetween state and federal regulators, the result often presents asoverly broad, stifling regulation. In the alternative, when duedeference is given to a balanced dual chartering system, allstakeholders benefit.

Efforts to eliminate risk without giving consideration to stateauthority and diversity are homogenizing the credit union system.Many financial products that are commonplace today arose frominnovations in state-chartered financial institutions. NCUA's shareinsurance rules that preempt state authority diminish theopportunity for varying state laws to provide flexibility forinnovation of new products and services.

As the U.S. Treasury Department observed more than 20 years agolong before our current economic and corporate crisis, “Diversityof supervision increases the chances that innovative approaches topublic policy problems will emerge…. A sole regulator, not subjectto challenge from other agencies, might tend to become entrenched,conservative and shortsighted.” Entrenched, conservative andshortsighted regulation is of no benefit to any of the stakeholdersof the credit union system.

It's important also to recall another time when dual charteringwas integral to the health of the credit union system–the AT&Tlawsuit that sparked H.R. 1151, the legislative remedy to federalcredit union field of membership issues. At that moment, the statesystem faced its own test of balancing immediate regulatoryconsiderations with the long-term health of the dual system. NASCUSsupported NCUA and the federal charter because state regulatorsfelt strongly that any damage to one charter ultimately affectedthe other. The federal charter needed the fix to field ofmembership that H.R. 1151, the Credit Union Membership Access Act,provided. Therefore, our support was unhesitating, in spite of thefact that the legislation provided no benefits to the state systembut rather imposed numerous restrictions on state creditunions.

It is short sighted to believe that the system can be successfulwithout regulatory agencies working to maintain the necessaryregulatory balance. 

Mary Martha Fortneyis president/CEO of the National Association of State Credit UnionSupervisors.