After the Berlin Wall came down, Congress decided to cash in thepeace dividend and began closing military bases. One of the basesthat closed was our primary sponsor, McClellan Air Force Base. Wedecided to convert to a community field of membership.Unfortunately, our federal charter limited the field of membershipto such an extent that we had to switch to a state charter to servethe multicounty Sacramento region. Charter choice is important formany reasons. The NCUA Board recently approved a new rule whichpermits the NCUA to designate a state-chartered credit union as “introubled condition.” The rule allows NCUA to override stateregulator determined CAMEL codes. This is one more step by the NCUAto threaten the dual chartering system. I am concerned that creditunions that choose a state charter are finding themselves under defacto federal regulation. That erodes the dual charteringsystem.

I sit on the Department of Financial Institutions advisorycommittee for California state-chartered credit unions. At our lastmeeting, the members of the committee, who representstate-chartered credit unions, shared their concerns regardingtheir recent examinations in which NCUA examiners acted as if theywere the regulator instead of the state DFI. The NCUA has used itsauthority as the share insurer to take over the examinationprocess. In our SAFE Credit Union examination last year, theexaminer in charge was assigned to our examination from the EastCoast. The NCUA examiner and his recommendations were out of lineand inconsistent with those of the DFI examination team. We clearlysaw that the NCUA examination team was trying to override thejudgment of the state examiners. The NCUA examiner at one pointrecommended that we stop lending to members. 

Clearly, the NCUA does not have confidence in state regulators.In California, that doesn't make sense. In fact, one could moreeasily have less confidence in the NCUA.

 In California, our state regulator is well-funded andin my experience (over 36 years as either a CPA for credit unionsor credit union executive) is well-qualified to regulatestate-chartered credit unions. On the other hand, there is a largebody of evidence that raises the question of whether the NCUA is acompetent regulator. The NCUA is the regulator on whose watchoccurred one of the largest financial institution failures in theUnited States, the failure of most of the large corporate creditunions, as well as numerous catastrophic failures of natural personcredit unions.

 The dual charter system offers credit unions theoption to choose the best regulator. At this time for hundreds ofCalifornia credit unions, the better choice is a state charter. Butthat choice is meaningless if the NCUA controls the examinationprocess, determines the CAMEL rating and dictates the findings anddetermines which solutions are acceptable to resolve thefindings.

The reason why the dual charter system is under threat is thatthe NCUA acts as both the regulator and the insurer. We need tochange that. In California, credit unions have the option forprivate share insurance. I consider that a bad option. The bestsolution for state-chartered credit unions is to have anindependent federal insurer. I would recommend that we ask Congressto make the NCUSIF independent from the NCUA or to allow creditunions to be insured by the FDIC or to merge the NCUSIF and theFDIC. All three options would give state-chartered credit unions anindependent insurer.

An independent NCUSIF would end the overhead transfer rate. TheNCUA determines (who knows how?) an amount each year that istransferred from the insurance fund to pay for regulation ofstate-chartered credit unions. Without the overhead transfer, theNCUA would be more accountable for its budget.

An independent NCUSIF would not be conflicted when it comes timefor prompt corrective action. The NCUA has in my opinion failed topromptly address failed credit unions because failures are negativepublicity for the NCUA and raise questions about failed regulatoryoversight.

An independent insurer would have more incentive to investigatefailed credit unions to determine the causes of failure. Theinvestigation of why credit unions fail would in my opinion lead tobetter oversight and regulation. The NCUA has every reason to coverup failures that point to their own lapses in examination andoversight. No one at the NCUA was ever held accountable for thelapses in oversight at the corporate credit unions.

An independent insurer would improve problem credit unionresolution when failures occur. The NCUA badly bungled thecorporate credit union resolution process. It filed suit againstboard members and management before filing suit against the mostculpable party, the investment bankers who created and sold theflawed investments. The NCUA's actions against board membersprejudiced their latter claims against the investment bankers. TheNCUA cancelled the corporate director's liability coverage andcreated a systemwide angst that to this day raises the question ofwhether volunteers who follow the reasonable man rule are safe fromthe NCUA lawsuits against their personal assets. 

Henry Wirz is president/CEO of SAFE Credit Union in NorthHighlands, Calif.
Contact 916-971-2201 [email protected]