The credit union movement has faced a number of economic and regulatory challenges in recent months.

Credit Union Times

recently sat down with NASCUS President/CEO Mary Martha Fortney to assess what has happened recently and what policy changes she hopes will be implemented in the future.

Credit Union Times:

Could you assess the state of the credit union movement and its regulatory environment as of the middle of 2009?

Mary Martha Fortney:

The economy has been difficult on credit unions and other financial institutions, and, like all other sectors of the economy, they've been hurting. The first-quarter statistics were very dire, and state and federal regulators are anticipating how the second-quarter numbers will look. Unfortunately, regulators worry and with the economy there are lots of things about which to worry. We are monitoring the increasing number of bankruptcies; regulators are watching how credit unions are doing their due diligence. They are looking at the fact that earnings are down and loan losses are up and real estate portfolios are hurting. This isn't any difference from what federal regulators are doing. How do credit unions feel? Credit unions feel that regulators are being aggressive and that there is some anticipation about what further regulations might be in the works. And I am specifically talking about what the administration is proposing in terms of the structure of the relationship between state and federal regulators. They haven't come out with something yet that would directly affect credit unions. The big change was the Corporate Credit Union Stabilization Fund, and NASCUS worked to mitigate the impact on natural person and corporate credit unions.

CU Times:

The corporate credit union situation is one of the biggest challenges credit unions and regulators have faced for a long time. How would you assess the way the NCUA handled it?

Fortney:

[NASCUS] Chairman [George] Reynolds was asked the same question during the House Financial Services' subcommittee hearing. We don't believe it's particularly productive to second guess regulators for taking specific actions with the information they had at that time. State regulators believe that the NCUA acted in an appropriate regulatory manner given the circumstances. However, from NASCUS' perspective, the process could have been improved, and to ensure that events don't recur, state regulators need access to more information on a candid regulator to regulator basis. Going forward, state regulators are actively engaged and will continue to be actively engaged with the NCUA to develop regulatory and supervisory solutions for the corporate credit union system.

CU Times:

Almost all of the credit unions that states regulate are regulated at least in part by the feds through the NCUSIF. How would you assess overall the way the NCUA has done its job on a day-to-day basis and how responsive is the agency to your input?

Fortney:

I think the NCUA is receptive. NASCUS deals with Board Member Hyland, the executive director, the Office of Examination and Insurance and the Office of Corporate Credit Unions. State regulators deal with their regional directors and supervisory examiners on a daily basis. Overall, the system is working well. The NCUA relies upon the states for the examination of state-charted credit unions and only goes into a handful of credit unions. There might be differences of opinion, but those are handled on a professional basis because that's how professionals should operate.

CU Times:

What will change from a regulatory point of view under the tenure of NCUA Chairman-Designate Deborah Matz?

Fortney:

I don't see a change. Since Ms. Matz is coming back with a full knowledge of how that agency works, I believe it will be business as usual with the continued positive working relationship between the federal insurer and state regulators and NASCUS. We will have meetings and regular teleconferences. We have a teleconference every other week, and there are at least 35 regulators talking to the NCUA regulator to regulator. That might decrease to once a month, but it's a good constructive dialogue and a chance to share regulator to regulator issues.

CU Times:

It's been a very busy legislative year so far for credit union issues. What are you expecting over the next several months?

Fortney:

There are two issues, one of which is regulatory restructuring. And we will testify in the House as we have in the Senate that dual chartering must be preserved and state authority must not be preempted. NASCUS' leadership met with [House Financial Services Committee] Chairman Barney Frank and he said from his perspective the regulatory restructuring would not negatively impact the credit union system or regulators. One thing we are going to continue to urge is supplemental capital or capital reform. Credit unions are operating under a restrictive capital structure and to weather these challenging times all credit unions need capital options. With supplemental capital they can protect the insurance fund and their balance sheets. We will continue to emphasize the importance of allowing all credit unions the option of supplemental capital. We wrote to Congress last year, and Chairman Reynolds at every opportunity talks about the need for reform, including risk-based capital. We are encouraged by Board Member Hyland's press release of last December that she wanted to work with state regulators and NASCUS. And we have been having those meetings. But you have state and federal regulators talking about what the capital would look like, how it would be regulated, and what the terms would be. I don't have an estimate on when work will be completed, but it is one of our organizational priorities. It's not going to be for all credit unions. We'll need investor protection, and we're not going to destroy the cooperative nature of credit unions.

CU Times:

One of the problems has been there is no consensus in the credit union world about what it is going to look like. Are you closer?

Fortney:

I am not sure we are at consensus yet, but we see steady, positive change in the momentum. It's a steady drumbeat, and we hope it will be enacted sooner rather than later. If it had been enacted four or five years ago, some of the credit unions might not be in the situation they are in now. But you can't go back; you only have today and tomorrow.

CU Times:

What about regulatory restructuring? I know you favor keeping the dual chartering system and keeping NCUA separate. Do you have a dog in the fight over where the systemic regulation should originate? Or about the proposed agency to regulate financial services products?

Fortney:

We don't have a position on where the regulator is housed. If there is a council of systemic risk regulators, we want the NCUA and state regulators to have a seat at the table. On the new agency, states have been proud of the role they've done in the consumer protection area. Massachusetts is one state that comes to mind as a strong state with regard to consumer protection. Our whole mission is balancing whether state authority is preempted. And I know there are times when Congress does or will preempt states, but our role is to monitor and judge the legislative proposals.

CU Times:

Look in your crystal ball. What do you see about the state of credit unions and the regulatory climate?

Fortney:

I tend to think that if things have not hit bottom, then things are bottoming out. There were, for example, fewer people than expected filing for unemployment benefits. But who knows? From my half-full perspective, I remain optimistic that the credit union system will survive. A lot of credit unions say there are opportunities for credit unions in this economy that we are in. The services that they provide to their members are important. It is no secret that there are still challenges to state credit unions and state regulators. Budgets are being cut and there are challenges in economically troubled states, such as California, Nevada and Michigan. I feel positive. My crystal ball says it won't be without some pain, but I don't think it will be shattered. I see a more robust system.

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