Mark McWatters, nominee for the NCUA board, said the possibleoverregulation of small credit unions and risk-based capitalrequirements are two of the greatest challenges facing creditunions that he wants to examine further.

Senate Banking Committee Chairman Tim Johnson (D-S.D.) had askedMcWatters at the March 13 confirmation hearing what opportunitiesand challenges he sees for credit unions.

“I think the greatest opportunity for credit unions is tocontinue what they’re doing now – 96 million Americans in creditunions – they’re growing, and their loan base is growing,”McWatters told the panel. “One opportunity is particularly forlow-income credit unions to expand their mandate to those Americanswho are under-banked and unbanked. There's opportunity there. Thosefolks need financial services and they need financial services at areasonable rate.”

McWatters, President Obama's choice for a Republican to replaceNCUA Board Member Michael Fryzel, said the principal challenge isto look to the future and anticipate the next systemic shock to thefinancial system.

“If you roll the clock back six years, seven years, the talkabout overconcentration of mortgage-backed securities on the booksof a financial institution, the too-big-to-fails or the largecorporate credit unions was largely non-existent,” McWatters said.“It was there. It was hiding in plain sight.”

However, the Texas attorney and business school dean warnedagainst sounding the alarm on potential problems too early.

“If you’re always crying wolf you’ll be considered a flake, soyou need to exercise judgment carefully and judiciously,” hesaid.

McWatters also highlighted the overregulation of small creditunions as another area of concern.

“NCUA has made some progress in this area – I think more workthough needs to be done. If I’m confirmed for this position, it'san area I want to look into,” he said. “I want to talk to creditunions. I want to talk to the NCUA. I want to reach an independentanalysis myself as to whether small credit unions areover-regulated or not.”

The NCUA proposed risk-based capital requirements at theagency's January board meeting. McWatters said a risk-based systemmakes sense philosophically for credit unions.

“The devil is in the details,” said McWatters, who added that hewants to look further into the issue.

Sen. Elizabeth Warren (D-Mass.) a member of the committee,expressed her full support for McWatters during the hearing.

“I worked closely with Mark on TARP oversight and he was alwayssmart, thoughtful and principled and I strongly support hisnomination to the credit union board,” she said.

McWatters told senators that he would bring a transparentregulatory perspective to the position.

“Lawyers and regulators need to take a step back and apply thelaw with impartiality and look at the larger picture. They need tothink both tactically and strategically, considering not just thedesired outcome, but potential unintended consequences,” hesaid.

“As such, my focus as a regulator will remain straightforward:Don't neglect the fundamentals of capital, liquidity andtransparency, and always remember that the greatest threat to afinancial system may reside where you least expect it—hidden withinplain view,” he added.

McWatters thanked Senate Minority Leader Mitch McConnell (R-Ky.)for recommending him to President Obama for the open position onthe NCUA Board.

“If confirmed, I will bring my 30-plus years of legalexperience, accounting training, general understanding of thebroader financial markets, an open mind, and a risk-based,market-oriented, targeted and transparent regulatory perspective toaddress the increasingly complex and sophisticated issues facingcredit unions,” he said.

McWatters also told the committee he would balance competingviewpoints while maintaining the safety and soundness of the creditunion system, safeguarding the Share Insurance Fund, enforcingconsumer protection rules, and protecting taxpayers as well ascredit union members from losses.

The committee did not announce when it would vote on thenomination. If he is approved by that panel, his nomination willthen go to the full Senate.