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In her May 13th column Editor-in-Chief Sarah Snell Cooke ended with the statement, “Fortunately, the credit union community is working to find a credit union solution to a credit union problem. This is the surest way to help guard against a single financial services-regulator regime.” Her’s is a widely held premise, but it is dead wrong. Following the Senate passage of its bailout provisions, NCUA Board Chairman Michael Fryzel said, “Today’s Senate approval of NCUA’s Corporate Credit Union Stabilization Fund and accompanying provisions such as increased borrowing authority, is an unmistakable affirmation by lawmakers that the credit union industry can and will take care of its own problems.” This comes off as a reckless assignment of motive to the members of Congress that won’t necessarily hold up under scrutiny. Many elected officials consider the full faith and credit of the U.S. government to be an in-kind subsidy that would cost a fortune if it had to be purchased on the open market. And borrowing from the Treasury is a privilege, not a right-that’s hardly taking care of the industry’s own problems. Most of the credit union trade associations and the NCUA have historically supported a separate, independent federal regulatory agency and insurance fund for credit unions. There are, however, growing forces and political momentum in favor of the single-regulator concept. Most knowledgeable congressional watchers predict that there will be legislative action this year. There are some industry analysts and a growing number of credit union executives who believe that a consolidated financial services regulatory agency would benefit the industry. They contend that the NCUA counterproductively imposes a legacy mission that stifles credit union growth and evolution. A sure way to fix that mission gridlock, they point out, is to have a federal regulator that respects the realities of the marketplace and that is not beholden to the credit union movement establishment. Credit union industry analysts who advocate a consolidated regulator believe that there would be increased strategic, governance and business model options from a single regulator of multiple varieties of federally insured depositories. They anticipate that alternative governance and ownership choices would become available once the NCUA’s self-preserving obstructionism was removed. A single regulator would, however, be less likely to provide regulatory compliance forbearance to the nation’s 3,200 credit unions under $10 million in assets that constantly struggle to keep up. There is also hope among this reform group that with the NCUA out of the picture, the credit union laws and regulations could finally be brought into the 21st century. Credit unions could seek and receive more structural choices-even the option to trade access to Tier 1 equity capital for taxation. Since it is already in place for other federally insured depositories, credit union Tier Two secondary capital could be recognized by regulators to meet minimum capital requirements. More governance choices could be available-proxies, board and committee structure options, director compensation and bylaws that don’t empower merely 750 members to disrupt a multibillion-dollar institution like the federal credit union bylaws currently mandate. As part of a single regulatory regime, credit unions could find the path to increased lending and investment authorities eased. Laws could be changed to ensure that credit unions could define their own field of membership and market niche by deleting anachronistic field of membership and common bond limits. And the costly and risk-laden 1% deposit insurance investment could be replaced by a more transparent and practical premium-based funding system. Instead of opposing regulatory consolidation, the credit union lobby should embrace it. Credit unions should task their trade associations to recalculate the pros and cons of strident opposition to a single regulator considering the converging forces that make that regulatory structure a near certainty. And Credit Union Times should rethink its faulty editorial point of view on the subject.

Peter Westerman

Credit Union Times

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