Bringing the State and Federal Credit Union Regulatory Systems Together

A special message from Mary Martha Fortney, President and CEO,
March 2013

The individuals who comprise the NCUA board and their qualifications and experience are of primary concern to the entire credit union system. They are of critical importance to the overall health of the nation's credit unions. With Gigi Hyland leaving this past fall, Board member Mike Fryzel's term expiring in August, 2013 and Chairman Debbie Matz' term expiring in Spring of 2015, President Barack Obama is in the position to appoint three new NCUA Board members before he leaves office. At the same time, as we all know, the financial crisis has focused national attention on issues of financial regulatory reform, making the NCUA Board even more important as NCUA, along with state agencies, plays a critical role in ensuring the safety and soundness of the credit union system. NASCUS leadership believes now is the time to make changes to the structure of the NCUA Board to require state regulatory representation.

At present, one NCUA Board member is a former state regulator. Fryzel had a long career in state government service that culminated with his service as the Director of the Illinois Department of Financial Institutions from 1982 to 1989. NASCUS believes an NCUA Board member with state government and state regulatory experience is valuable to the work of the NCUA, especially as it administers the National Credit Union Share Insurance Fund. As evidenced from their state supervisory service, Fryzel and his senior policy advisor understand state credit union regulation and state credit unions. That said, Fryzel's appointment was a fortunate coincidence that may not happen again. A mandate that state regulatory experience be a requirement for one seat on the NCUA board would permanently codify the proper balance between state and federal experience in the supervision of state-chartered credit unions, which comprise close to 40% of federally insured credit unions.

Why is this important and how will it serve the credit union system? State credit unions and state regulators have been at the forefront of operational and supervisory innovations that have led the credit union system into the current age. Codifying an NCUA board seat for a state regulator who understands the critical role of the state system will help ensure that a meaningful dual chartering system will persevere in the future.

A similar precedent regarding state regulator experience on the board of a federal financial regulator was set by NCUA's sister agency, the Federal Deposit Insurance Corporation (FDIC) in the mid 1990s. The Federal Deposit Insurance Act ("FDI Act") was amended to include the provision that one board member must have state bank supervisory experience. How did this happen?

In 1995, two very similar pieces of legislation were introduced during the 104th Congress. The first, which proposed that one member of the FDIC's Board of Directors be required to have State bank supervisory experience, was passed into law as part of an omnibus consolidated appropriations act for the fiscal year ending September 30, 1997. The second, which proposed expanding the NCUA's Board of Directors and reserving one of the seats for a state credit union supervisor, was referred to the House Subcommittee on Financial Institutions and Consumer Credit, and never emerged.

The FDI Act vests the management of the FDIC in a five member Board of Directors. Of those five members, one seat is reserved for the Comptroller of the Currency, one for the Director of the Consumer Financial Protection Bureau, and the remaining three are appointed by the President with the advice and consent of the Senate. As a result of the proposed legislation Section 2(a)(1)(C) of the FDI Act was amended in 1996 by inserting the phrase "[one] of whom shall have State bank supervisory experience," to the description of board member requirements.

The Federal Credit Union Act (FCUA) vests the management of the NCUA in a three member Board of Directors, all three of whom are appointed by the President with the advice and consent of the Senate. The FCUA specifies that board members must have appropriate experience in financial services, and that no more than one member may be a current or recent institution-affiliated party of any insured credit union. NASCUS believes it is time to seek an amendment to the FCU Act to include the phrase "[one] of whom shall have state credit union supervisory experience," to the description of board member requirements.

Of course, the complex political process by which specific candidates for a presidential appointment rise and fall is often beyond the ability of the stakeholders to control. However, that the process is a force in its own right and should not deter the system from proactively asserting the qualities and qualifications desired in the professionals that will ultimately lead the NCUA.  We believe there's no better time than now to bring the federal and state regulatory systems together in a meaningful way at the policy-making table of the NCUA board for the benefit of the entire credit union system. NASCUS looks forward to the discussion of what experience and qualities will best serve the entire credit union system, NCUA, state regulators, and state and federal credit unions, on the board of the federal regulator.  The importance of the states helping to create a strong, viable credit union system cannot be overstated, and we believe ensuring state regulatory representation on the NCUA board is important.  I hope you will let us know your thoughts on these issues and we welcome your feedback.