Dunn also pointed to history to back up CUNA's argument that an independent regulator for credit unions is best. She "unearthed" statements from when federal credit union regulation was under the FDIC's purview from 1942-1948 that demonstrated "the FDIC could care less." Dunn wrote, "The relationship between FDIC and the credit union movement was short-lived and acrimonious because the agency was preoccupied with regulating banks and did not have an interest in the credit union movement or the federal credit union charter…There are a number of incidents from that time period that indicate the FDIC was not concerned with credit unions, such as in 1946, when the FDIC submitted an audit report to Congress declaring, 'The supervision and examination of Federal Credit Unions was an extraneous function of the Corporation.'"

The Bureau of Federal Credit Unions, NCUA's predecessor, was born in 1948. More recently though, Dunn pointed out that the immediate past chairman of the FDIC, Don Powell, called for the taxation of credit unions during his tenure.

NASCUS' Trout-man stated that the state regulatory bodies "operate as the "laboratories" of financial innovation" and, while they are "continuously challenged by modernization, globalization and new technologies," the regulatory structure should permit a continued dual chartering system.

While not specifically addressing the state and federal credit union charters, NCUA stated that "charter choice and the multiple types of depositor institutions are stabilizing factors for the U.S. economy and directly contribute to the success of the U.S. financial system. The niche that the credit union industry fills in the U.S. financial system is an important one that should be preserved to the fullest extent possible."

The letter, signed by NCUA Chairman JoAnn Johnson, also points out that credit unions' unique one member, one vote philosophy and not-for-profit cooperative structure makes it particularly consumer friendly. Under the current system, she noted, "Since each regulatory oversees a specific group, the business needs and risks of those groups can be fully understood and regulated accordingly."

NASCUS highlighted that the same is true in comparing the federal and state levels. "Many of the consumer protection programs were designed by state legislators and regulators to recognize choice and innovation; these protections may not have been recognized in a more simplified regulatory structure," Troutman wrote.

NAFCU, which bills itself as the only trade association exclusively representing federal credit unions, threw in its support of the dual chartering system as well. "Under the current framework, state-chartered credit unions whose shares are insured by the NCUSIF are subject to rigorous safety and soundness regulations promulgated and administered by the NCUA, while enjoying the charter options available to them under state regimes," Becker wrote.

Are You in Good Hands?

"NCUA has a successful record of regulating federal credit unions charters and also serving as insurer," Johnson wrote NCUA's letter. "This structure has stood the test of time, including various adverse economic cycles. At no time under this structure has the credit union system cost the American taxpayers any money in a bailout or capitalization need."

Regarding overall financial services regulatory consolidation, NASCUS stated its wish that "the responsibilities of the insurer and the primary regulator should be separate, distinct, and well defined." "NASCUS believes that this structure limits conflicts of interest between the regulator and the insurer and allows an insurer to be independent," Troutman wrote.

CUNA and NAFCU wrote in support of maintaining the current system. CUNA specifically stated, "Credit unions would not support the transfer of NCUA's insurance functions to a general deposit insurance agency. We believe deposit/share insurance administration and credit union supervision substantially overlap and should not be separated. Share insurance gives rise to the moral hazard of excessive risk taking, requiring NCUA to have supervisory authority so as to protect the NCUSIF." Additionally, the bank and credit union insurance funds are so different, combining them would be inappropriate.

Reg Relief and Enhancement

The credit union trade associations also took the opportunity to plug the risk-based capital proposal included in the Credit Union Regulatory Improvements Act (H.R. 1537). As the banking regulators have approved Basel II for the largest banks, credit unions' entrance into risk-based capital should not be denied. "Such a change would be sound public policy as it would promote safety and soundness, provide for more effective net worth management and improve asset risk evaluation by replacing the current, less precise net worth requirements wit ha structure that more closely monitors risk," Dunn wrote.

Becker added that the new capital framework could be phased in similar to how the banks are doing. Banks will have to successfully run both systems for four quarters before entirely switching over of the new Basel II system. "NAFCU maintains that a similarly rigorous transition process could be adopted for credit unions to ensure adequate capitalization and to monitor for any material deficiencies in a risk-based capital framework," Becker wrote.

In addition to this regulatory enhancement, relief is needed in many areas. Not only are credit unions expressing concern about the big ones, like the Bank Secrecy Act, but just the accumulating pile of regulatory burden that is making credit unions, the smaller ones in particular, stagger under them.

"NAFCU is concerned about the significant compliance challenges imposed by the litany of rulemakings and regulatory amendments that are made annually," Becker said. "The cumulative regulatory burden is great and substantially impedes the ability of financial institutions to compete efficiently in the global financial marketplace." The compounding regulatory burden also leads to extra costs for consumers.

CUNA emphasized that it was excited to share the results of the findings of its Banks Secrecy Act Task Force, which has been meeting over the past month and will meet with policymakers in December, with Treasury.

NAFCU also cautioned against the "deputizing" of financial institutions to fight financial crime. "NAFCU urges Treasury to remain cognizant that the key role of depository institutions is to provide financial products and services in a safe and sound manner–not to police against criminal behavior," according to Becker.

Tax-Exemption

Through it all, credit unions must maintain their tax-exempt status in order to continue functioning as non-profit financial services cooperatives. CUNA expressed concerns a bout Treasury's conference on Business Taxation and Global Competitiveness distributed in July, which listed the credit union tax-exemption as a piece of the pie to lowering corporate income taxes.

Dunn also pointed out that then-Acting IRS commissioner Kevin Brown listed credit unions as the No. 2 compliance issue for "a blurring of the line between the tax-exempt and commercial sector." She stated, "As we did at the time, we question why the credit unions' tax exemption was even brought up in either of these contexts, given the Administration's commitment to supporting credit unions on this issue."

Dunn told reporters she had fully expected the bankers to challenge credit unions' regulatory and tax structure in their comment letter. For their part the American Bankers Association and America's Community Bankers stayed away from credit unions, opting to concentrate on keeping a multi-faceted regulatory system, in part as it applies to separate thrift and banking regulators. ABA and ACB, which primarily represents thrifts, are set to merge this month, but the two groups have agreed to continue the fight to maintain separate bank and thrift regulators.

The Independent Community Bankers of America had not filed its comment letter as of press time last week.

Comments were due Nov. 21.

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