Remember the 1980s when we were introduced to Grey Poupon? My brother and I, in elementary school at the time, would affect snooty accents and ask, “Pardon me, would you have any Grey Poupon?” “But, of course.” Malcolm Gladwell, in his book What the Dog Saw, points out that until that time, French’s dominated the market, but by the end of the 1980s there were several different brands and varieties of mustard.

Little has changed in the world of ketchup, however, Gladwell noted. Heinz is the clear leader and there’s practically no variety. In fact, the only real change has been from glass to plastic bottles that young children – including even adolescents like my son who ketchups everything – can squeeze for themselves. Apparently there are ketchup tasting experts (my son should apply) who determined that Heinz ketchup is the perfect blend of the human taste palate. The story concludes by quoting a formerly budding ketchup pioneer, “I guess ketchup is ketchup.”

The NCUA board chairman is credit unions’ Heinz ketchup. The packaging may change, but the person in that position still controls policy and the agency agenda. That person, in fact, has a monopoly over the agenda, which is seasoned to the political tastes of the day. An interesting aside: Ketchup’s modern day balanced flavor can be accredited to innovation brought about when a government agency decided the 19th century preservative used was unsafe. Heinz came out the new taste winner. See, regulation can force innovation!

For a relatively minor regulatory agency in the grand scheme of things, the NCUA is certainly garnering a lot of attention right now. Talk of expanding the size of the NCUA board, giving the agency third-party oversight, budget hearings and studies of financial institutions’ level (or lack) of regulatory capture is rearing its head in Washington. But as campaigns ramp up, actual progress typically winds down. Political activity tends to be inversely proportional to policymaking.

Talk is yet again kicking up about increasing the NCUA board size from three members to five. It sounds mundane even as I write about it, but it brings about some pretty strong feelings – like benzoate as a ketchup preservative. Who knew?

NASCUS has long pushed to expand the board to include representatives from the state regulators. NAFCU is opposed because as it stands, federal credit unions fund the operating budget of the NCUA; the board expansion would likely cost $1 million in salaries alone for the new board members and their staffs. CUNA has been quiet on the issue thus far. The Government Accountability Office is wondering whether a three-person board lends itself to greater potential for industry capture – despite the limit of one member with direct credit union experience in the last year. House Financial Services Committee Chairman Jeb Hensarling even gives adding a Credit Union Advisory Council a mention in his latest piece of legislation to reform Dodd-Frank.

While I don’t believe industry capture is a concern at the NCUA, a five-member board will help avoid that appearance and the accusations that the bankers level all the time. They particularly won’t be able to complain given the FDIC board comprises five members. Credit unions are usually asking for parity; here’s an opportunity.

I’m not typically one for bigger government, but this just makes common sense. Currently there are two board members on the three-member board following the exit of former Chair Debbie Matz. One is a Democrat and the other is a Republican. Both are well versed in the issues, but definitely seem to have different ways of going about them. If a serious issue were to arise, the strong possibility exists that each would have an entirely different manner of going about solving the problem. Where does that leave the credit union community? This conundrum is less likely to arise with five board members.

It’s not as if this situation is an anomaly. Years ago Matz served with then-Chair JoAnn Johnson, a Republican. At one point, then-NCUA Chairman Dennis Dollar was the sole board member. Imagine a situation the magnitude of 9/11 with only one sitting board member and no diversity of opinion or experience. What if that lone board member had been a hardline dictator rather than a level-headed person? It happens. Even normal industry regulation can be held up while the board as it’s currently structured awaits a third member. The current set up is impractical.

Others may say quite the opposite. The NCUA board meetings could run on and on and on and on with the customary political peacockery. Standard time limits can be set to eliminate this problem. The House can manage the preening of 435 representatives, so surely the NCUA board can handle five. The FDIC does.

Vendor oversight is another area where the NCUA does not have parity with its fellow regulators. The Financial Stability Oversight Council’s annual report renewed its call for the NCUA to be given examination authority over third-party vendors that serve credit unions. Financial institutions, particularly credit unions, outsource a lot if not all of their technology, including core processing. These companies are as important to serving credit union members and the credit unions.

The NCUA may not have the expertise or resources to oversee these companies, so that’s a huge hurdle, but it seems that something should be done. The agency could work with existing regulators of these companies to glean the information they need to ensure the safety and soundness of the systemically important organizations. Most credit unions were just as dependent upon the corporate credit unions as they are on some of their vendors; the only difference was the direct hit to the share insurance fund. When trouble arose in that sector, the agency had to scramble to cobble together a solution that benefited the entire credit union community in the long run. One can empathize with the agency not wanting to be caught in that position again, and the credit union community shouldn’t want to be either.

The ultimate question is, does the industry want good policy or cheap policy?

Instant Insights /

Legislators, Regulators Seek Credit Union Oversight Secret Sauce

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