ARLINGTON, Va. – Reforming the structure and organization ofNCUA to allow for a clearer delineation of the insurance andregulatory functions of the federal agency has been on NASCUS'radar screen for awhile. After completing an extensive study onRestructuring the NCUA, NASCUS has released its reorganization planfor the agency. The study that was researched and written by NASCUSChairman Roger Little, deputy commissioner of the Michigan Officeof Financial and Insurance Services, Credit Union Division, andNASCUS' Brian Knight, director of legal and policy analysisconcludes that: “It is the view of NASCUS that the current NCUAstructure is flawed and provides for conflicts of interest thatmust be addressed. It is NASCUS' recommendation that NCUA shouldcreate a `Director of Insurance' coequal to the Executive Director,General Counsel and Inspector General and that this separation ofNCUA's insurance and chartering authorities should take placethroughout the agency.” NASCUS emphasizes though that the NCUSIFshould remain within the NCUA and the NCUA should remain anindependent federal agency. “We're not supporting the idea that theshare insurance fund should be merged with the FDIC or taken fromthe NCUA Board,” Little stressed to Credit Union Times. “But itneeds to have improved control and a greater separation betweenwhat's insurance and regulatory related. That will enhance the longterm prospects of having the insurance funds staying within NCUA,”he said. Inherent Problems “In essence, NCUA is hampered by tworelated conflicts of interest that arise because the insurance[Insurer] and chartering, regulatory, and supervisory [CharteringAuthority] functions are commingled at NCUA and indistinguishablefor all practical purposes. There should be greater checks andbalances between the NCUSIF and the supervision of federal creditunions,” the report reads. The report notes that the GeneralAccounting Office (GAO) expressed its concern over NCUA's allegedsupervisory conflict of interest in 1991 in its report on creditunions where it stated that “a clearer distinction between thechartering, regulatory and supervisory functions, and the insurancefunction needs to be made. Separate positions for a Director ofSupervision and a Director of Insurance should be established, eachreporting separately to the Board,” the GAO wrote in its report.NASCUS said its proposal to reorganize the NCUA is modeled on theState Regulator/NCUSIF structure. In general, it separates theinsurance functions from the NCUA's chartering functions, and “itwould restore regulatory competition to the benefit of bothregulatory agencies and their credit unions. It would result infiscal accountability for the NCUA both toward its federal creditunions and the NCUSIF. It would restore public and Congressionalconfidence in the NCUA's ability to carry out its dual missionseffectively. Remedying those conflicts would create a healthierfederal agency, provide greater protection to the credit uniondeposits held by the NCUSIF, and create greater accountabilitywithin the NCUA.” Under the current organization plan, the reportexplains, NCUA classifies a variety of staff as insurance functions– “the NCUA personnel responsible for administering the insurancefund are the same people responsible for chartering federal creditunions, examining federal credit unions, regulating federal creditunions, and promoting the federal charter” – and by doing thisNASCUS argues “the NCUA is subsidizing the federal charter at theexpense of state-chartered credit unions.” The association opinesthat, “the classifying of chartering and field-of-membershipissues, federal credit union name and bylaws changes, low-incomedesignations, and other such related work is more properly theresponsibility of the chartering authority and not the insurer.”Little told Credit Union Times that while Knight and he began theactual work on the report six to eight months ago, “the ideas havebeen formulating for a number of years.” He explained that NASCUS'view is “the current system may lead to a blending of fundingbetween the regulation of federal credit unions and the insurancefund.” Little addressed this issue in October when he testified infront of the NCUA Board at its budget briefing. In presentingNASCUS' opinion on the agency's proposed budget for FY 2005-05,Little told the board that “NASCUS' concern with the NCUA budget isless one of spending than one of accounting and appropriatesegregation of functions. Given NCUA's mandate under Title I of theFederal Credit Union Act to regulate federal credit unions andNCUA's responsibility under Title II to manage the Share InsuranceFund, it is imperative, in our view, that NCUA properly segragatecosts for both of those responsibilities when developing itsbudget.” He noted to Credit Union Times that, “NCUA is the onlyfederal agency that regulates federal credit unions as well as aninsurance fund.” On the banking side, there is a clear delineationbetween the federal bank regulator and deposit insurance, he said.Little explained that a financial institution regulatory agencydoes certain things that are grounded in the idea of protecting thesafety and soundness of the regulated institutions. “But NCUA'sposition is anything that has to do with safety and soundness isinsurance related, not a regulatory obligation, and is solely anissue of their role as insurer,” he said. “That position is notconsistent with the rest of the financial institution regulatoryworld.” Little continued: “Our interest is fairly narrow. NASCUSdoesn't have any concerns with NCUA's budget. Our concern is thecost of the share insurance fund for credit unions. Our premise isthat the current system results in the cost for federal creditunions of being regulated being understated, and the depositinsurance fund cost being overstated.” Every Little Bit HelpsCommenting on the NCUA's decision, as evidenced in its Novemberboard meeting, to make the overhead transfer rate setting processmore transparent and to use a new formula to determine the OTR, theNASCUS Chairman said “NCUA is to be commended for its efforts tobreak out the costs involved for the management of the insurancefund and its regulatory responsibilities. The new formula is apositive move on NCUA's part.” He added that “NCUA has demonstrateda willingness to work with NASCUS on this issue.” Little said NCUAhad received a copy of Restructuring the NCUA and he said theagency was in the process of reviewing the report. “The NCUAfundamentally disagrees with our interpretation, but our dialoguewith them is on-going and constructive. We want this to be athoughtful process.” He added that the proposal could beaccomplished through administrative changes and wouldn't requirelegislation. He further explained that, “NASCUS' focus has been onthe amount of the overhead transfer rate. Now we've moved beyondthat, and view the OTR as a symptom of the larger issue concerningthe structuring of NCUA. “NASCUS doesn't have the ultimate solutionto the situation,” Little said. “We wanted to put something on thetable to facilitate the discussion on how to get from point A topoint B. We felt there was a need to put something on the tablerather than just complain about the situation, so NASCUS decided totake the initiative.” Little said NASCUS is aware that theassociation's proposed reorganization plan for NCUA raises severalcritical cost issues – the cost of reorganizing, the impact on theNCUA's annual budget, and accounting/allocation costs. “With a moreaccurate accounting of the expenses of chartering and supervisingfederal credit unions and administering the NCUSIF, the NCUA willbe forced to develop spending discipline,” the report states. -

[email protected]