ORLANDO—NCUA Vice Chairman Rick Metsger offered his thoughts during the NACUSO annual meeting here on NCUA’s FOM rules, guidance to examiners on MBLs, and whether the agency might seek a third point of view on its revised risk-based capital proposal.
Metsger has made updating NCUA’s field of membership rules for federal credit unions—which he said haven’t been advanced since the Flintstones were on TV—his signature issue, and has set deadlines in 2015 for the agency to reduce bureaucracy and red tape around FOM for federal charters.
As Metsger has noted in earlier remarks, he believes the agency has broad latitude to determine FOM rules and he “believes in expanding those opportunities.”
“I know that unless we put a focus on the issue it’s not going to get done in a timely fashion, because it is the federal government. But I am committed to getting something done in 2015,” said Metsger, noting NCUA can take steps on its own without waiting for Congress.
But what about the threat of another lawsuit by the banking industry over field of membership should NCUA make changes?
“When I was a state senator (in Oregon) and met with lobbyists who were opposed to something, they always threatened to sue,” said Metsger. “And I would say ‘Everyone says that.’ I have two concerns with legal issues as a regulator. Number one, do I believe we have the authority to do it under the broad authorities given to us as an independent regulator. If I believe we do, then number two, would this be a good public policy decision? If I can answer yes to those two questions, I don’t care if people threaten to sue, because NCUA is trying to make it easier for American citizens to join a credit union. I believe this could be a game-changer.
Metsger reiterated support for the dual chartering system, saying the tension between state and federal charters is “what advances the whole system.”
Regarding other issues:
Risk Based Capital
On the revised risk-based capital proposal, which is out for comment for a few
weeks more, Metsger said he is pleased with the feedback to date and based on the comments he has seen to date he does not expect “significant material changes to the first proposal, although there will be some modifications certainly.”
Member Business Lending
Metsger said the agency is working to change and improve the guidance it is providing examiners. “This is very complicated, and I really hope you will provide the same analytical response (as to the RBC proposal). Our goal is to streamline this process. We recognize the overwhelming number of credit unions that engage in MBLS do this very, very well. We want to get out of the waiver business, the forgiveness business. We want our examiners to be as well-schooled as possible. We are going to move to a principal-based requirement for MBLs as opposed to the current prescriptive style in which it’s spelled out specifically what you can and cannot do.”
Questions & Answers
At the conclusion of his remarks, Metsger took questions from the NACUSO audience. Below is a look at the Q&A:
Q: What about NCUA’s response to data breaches?
Metsger: Our Office of Continuity has had a very robust discussion in just the last year in terms of making sure that our data is protected. This is going to evolve in terms of the systems we use, the complexity of that data, the storage of data. NCUA is attempted to be hacked hundreds of times per month. We’re very cognizant of it. We are in the same boat that credit unions are.
Q: We are a state-chartered CU and up until a few years ago we were examined every 18 months, not it’s every 12 months. I was talking to an examiner and asked him now that the Great Recession is over, are we going to go back to the 18-month cycle, and his response was “What would we do with all the examiners we hired?” Are we going to go back to the 18-month cycle?
Metsger: That is a topic we are having discussions on and have for some time. I have heard this multiple times. When you are on a different cycle than state, someone in every six months. We are working on this with our state partners on what would be the criteria to move to an 18-month cycle for XYZ CU, for example.
Q: On MBLs, you had talked about it being more principals-based and wanting to get out of the waiver business. Who is looking at that and how is feedback being obtained? What might rule look like?
Metsger: Our office of E&I has been working on this and they have sought input from people in different regions. When done we’ll have a proposal, but that will be the first step, and that should lead to robust discussion. There is no specific language at this point. But in terms of guidance, the biggest driver on that is looking to FDIC.
Q: As more states legalize marijuana, is it on the radar screen at NCUA to provide guidance on doing business with marijuana businesses?
Metsger: We have a number of credit unins in those states who have members who are engaged in some form with the marijuana industry. That doesn’t create any safety and soundness issues for us, as it’s just one (business category) you’re doing business with among hundreds. Where that changes and where the real issue is, if you get a CU that is set up entirely as a marijuana CU. Now you have concentrated that risk. Then you have to look at the fact federal law is different from the state law. Can a federal insurer insure something that’s illegal? Can the federal agency obtain the collateral if there is any problem, when it’s illegal to have that collateral? At some point in time the federal level at the congressional and Department of Justice level will make a determination that makes this point clear. Other than that, if you have controls in place, it doesn’t matter who you serve.
Q: We know that Chairman Matz secured a legal opinion for $150,000 that NCUA has the legal authority to issue the RBC proposal and that Board Member Mark McWatters, who has strong credentials, has a pretty strong opinion opposed to this. Why not go get another opinion to settle this issue?
Metsger: I will be candid: you can get an attorney to make a case for whatever you want. If you go to court everyone is sure of themselves, but 50% will be wrong. I believe this is good public policy. When I was on the board at OnPoint CU I didn’t want to be in the same category as an adequately capitalized CU, I wanted to be in category with well-capitalized credit unions. I think this is in the best interests of the credit union system. As you look over the data the biggest issue right now for a lot of credit unions is to be able to use the capital they currently have. There is a lot of capital that could be put to better use.