NASCUS members’ Annual State Summit meeting begins today. It includes a “fireside” chat with new NCUA Chair Harper. Hopefully this dialogue will be enlightening. For two of his recent proposals pose an existential threat to the dual chartering system.
The first would fundamentally alter the legal framework of the unique, cooperatively designed NCUSIF, by removing all the guardrails on expenditure. Harper defends these changes by reference to the FDIC, a premium based fund that has failed repeatedly since the NCUSIF 1984 redesign.
The second Harper initiative is a new three-pronged capital structure for all NCUSIF insured credit unions. Some credit unions would be allowed to follow the current risk based net worth (RBNW) model. Others would be required to follow the 2015 risk based capital (RBC) rule, yet to be implemented. A third group of so-called complex credit unions could elect a new CCULR ratio that would raise their well-capitalized requirement by 43% from the current 7% to 10%.
All of these capital changes would take effect on January 1, 2022, or in five months, if Harper is able to get a second board vote.
The End of Dual Chartering
Aside from the lack of any substantive basis for these proposals, the outcome would effectively end the dual chartering system. Risk based capital would throw a single regulatory blanket over every asset and liability decision made by an NCUSIF insured credit union.
NCUA would be the single hegemonic regulator for all coop charters. This single lens for risk evaluation would create a homogenous cooperative balance sheet. Instead of increasing safety and soundness, if this uniform approach to risk analysis is wrong, it could lead the cooperative system over a cliff.
The One Sure Defense: Choice
This prospect of NCUA dominance was foreseen decades ago. The following is a timely and timeless reminder of this threat in a speech by former NCUA Chair Ed Callahan in 1986. The excerpt of these remarks to the Association of Credit Union League Executives is under three minutes. https://www.youtube.com/watch?v=cTMGvXPnVa8
“The insurer is the regulator. The system only works when there are choices.”