Editor's Note: The following response from NCUA Board Member J. Mark McWatters to a column by CUToday.info's Frank J. Diekmann that can be found here.
I read Frank J. Diekmann November 21 posting, "After Careful Consideration - Two Potentially Explosive Suggestions," regarding my November 19 NCUA Board Statement and thought it helpful to offer a couple of additional thoughts.
First, there's a huge difference between the "appearance" of a conflict of interest and an "actual" conflict of interest. It's another matter entirely (an order of magnitude) to suggest "illegal activity." If I though for a moment the NCUA had an actual conflict of interest or was engaged in illegal activity conceding the OTR methodology I would say so in no uncertain terms. I am not aware of either such activity.
That said, when the NCUA refuses to describe the OTR methodology in a transparent manner, refuses to issue the OTR methodology for comment under the safeguards of the Administrative Procedure Act (APA), relies upon an accounting firm to render advice regarding the legal basis of the OTR methodology, redacts from the accounting firm's report conclusions that are critical of the agency prior to posting the report on the agency's website, refuses to follow the recommendations of the accounting firm regarding the lack of involvement of the credit union community in the OTR methodology, increases the OTR year-in and year-out, and fails to decrease the agency's operating budget as the credit union community consolidates, it's not unreasonable to argue that some may view this as creating the "appearance" of a conflict of interest. To repeat, this does not in any manner whatsoever imply or suggest that an actual conflict exists or that illegal activity has occurred.
In order to negate any appearance of a conflict, the NCUA should submit the OTR methodology for comment under the APA and demystify the OTR methodology so as to demonstrate to the credit union community that appearances are misleading.
As reflected in my Board statement, I am of the view the credit union community deserves and needs an independent federal regulator of its own, the NCUA. Yet, as credit unions continue to consolidate (the community is losing approximately one credit union per business day) and grow in asset base (well beyond the one trillion dollar mark), as federal charters continue to convert to state charters (at a 3 to 1 ratio, I believe), as the NCUA's insurance function continues to outpace its regulatory and chartering functions (very few new charters), as the NCUA's regulations become more and more bank-like (RBC), some may question why we need the NCUA when the FDIC and OCC could serve these roles. This is not an irrational concern, particularly when it's articulated by those who do not appreciate the unique nature of not-for-profit, cooperative financial institutions.
Along these lines, some may argue that the NCUA should actively resist the conversation of federal to state charters, and enhance the NCUA's reason for being, by "liberalizing" the agency's field of membership (FOM) rule. As noted in my FOM Board statement, the NCUA should not modify the FOM rule in any matter that is contrary to the Federal Credit Union Act (FCUA). Those who advocate the NCUA should “modernize" the FOM rule so as to make the federal credit union charter more “competitive” with state charters, or suggest that the NCUA should so act because Congress is “deadlocked," misunderstand the role of regulators.
The NCUA Board’s job is to interpret the FCUA within its four corners and leave to market participates the analysis regarding charter selection. While some may lament the conversion of federal charter credit unions to state charters, as a safety and soundness regulator, I view that as a policy issue reserved for Congress. Sure, the NCUA has some latitude to modify the FOM rule (and I did vote to issue the proposed FOM rule), but any amendment that does not fall squarely within the FCUA must emanate from Congress and not the NCUA.
J. Mark McWatters, Board Member
National Credit Union Administration, Alexandria, Va.