By Frank J. Diekmann
A “shoot from the hip kind of guy” is not a phrase you would ever associate with NCUA Board Member Mark McWatters.
He is a CPA and an attorney with experience in tax and corporate finance law who was a professor and assistant dean at SMU’s law school, and he measures his words carefully and thoughtfully—and that includes supporting footnotes. You might disagree with him, but it won’t be because he has not presented his case effectively.
So shoot-from-the-hip is not his style; he’s more of a “dispatch a cylindrical projectile but only after cautious analysis from a stable, mid-torso position” kind of guy.
That’s why a couple of McWatters’ remarks and the inferences made during last week’s NCUA board meeting were, frankly, pretty shocking and potentially explosive, suggesting first that NCUA has manipulated internal resources in order to fund its budget, and second, inferring there is perhaps a case to be made for doing away with the agency and having FDIC regulate credit unions.
As noted, McWatters is an accomplished attorney well aware of how language can be parsed, so in my deposition here let me quote directly from portions of the 13-page, 6,700-word (including footnotes) statement that can be found in its entirety here that he read at last week’s board meeting.
“…The NCUA is a federal regulator and should develop and implement policies in an impartial manner, yet the inexorable increase in the (overhead transfer rate) over the past several years generally favors federally chartered credit unions. This creates the appearance of a conflict of interest between a federal regulator and federally chartered credit unions to the particular detriment of state chartered credit unions.
“As the number of federally chartered credit unions has decreased it appears that the NCUA has redeployed its examination resources to state examinations thereby increasing the insurance related hours and, as such, the OTR. This result necessarily follows if there is an increasing examination force shift toward more active state charter insurance examinations. Thus, as the operating budget steadily increases (or remains substantially unchanged) year-in and year-out or the number of federal charters diminish relative to state charters, the OTR continues its climb as well.”
'Misinformation' Alleged
That comment led to a strong response from NCUA Chairman Debbie Matz that McWatters’ “misinformation” was “impugning the reputation” of the agency. But it’s far more than dissing NCUA’s rep—it’s a charge that one could argue implies illegal activity at the highest levels of a federal agency. That’s serious stuff.
If that statement were not combustible enough, McWatters followed a moment later with this: “While in my view, credit unions are best served by having a regulator that understands the not-for-profit, cooperative business model, the justification for a separate federal credit union regulator becomes less apparent as the agency shifts to more of an insurer and less of a regulator. This distinction becomes even more pronounced as the regulations promulgated by the NCUA closely parallel those of the FDIC and are less tailored to the specific risks presented by the credit union community to the NCUSIF. If the NCUA simply acts as an insurer with a panoply of FDIC-centric regulations, some may begin to question its reason for being.”
Since its 1970 creation as an independent agency the credit union trade groups and credit unions themselves have been questioning NCUA, as they should. But there’s no question what FDIC regulation of credit unions would ultimately mean: an end to credit unions.
Disagreement and debate on the NCUA board are a good thing (and not just for the media). It’s not supposed to be three people with flowers in their hair singing John Lennon’s Imagine on a hilltop (although imagining that image is pretty entertaining); too many 3-0 board votes means no one is questioning anything, and NCUA board members have a duty to raise questions. But it’s a pretty fine (legal) line between raising questions and making accusations.
During a terse exchange (you can read more here) with Matz once he finished reading his statement at the board meeting, McWatters made clear he gave a great deal of thought to his commentary. “Go to my website, see what I’ve written, with footnotes and in detail. These are not ad hoc things I dreamed up the night before,” he said.
Indeed, they were not. But for the NCUA and for the broader credit union community itself, some cool-headed thinking is going to be demanded over all of this, or the outcome will be anything but the stuff of dreams.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info.
Editor's Note: NCUA Board Member Mark McWatters has issued a response to this column that can be found here.