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McWatters: Nothing is More Important than Speaking to CUs
Friday, April 10, 2015 6:25 AM

NCUA McWatters

At Cornerstone Credit Union League's 2015 Annual Meeting, breakout speaker J. Mark McWatters told credit unions that of all the things he does at National Credit Union Administration, nothing is more important than speaking to credit unions.

McWatters, an experienced attorney, represented numerous “too big to fail banks” before joining NCUA. Although he has in depth knowledge on financial institutions, he admits he still has much to learn about credit unions.  As a result, his mission is to listen to what credit union leaders have to say. He insisted he really wants to know, in detail, how credit unions think and how the federal regulations affect them.

NCUA has typically taken an approach akin to a “regulatory shotgun, instead of a rifle,” McWatters said. He indicated that he intends to take a more focused approach to regulatory review in order to avoid unintended consequences of over-regulating credit unions.

Regulatory Review

McWatters said he operates on three key guiding principles every time he considers new regulatory proposals:

  1. The best idea has to prevail. It sounds easy, he said, but the easy idea may not be the practical one. Case in point, the risk-based capital proposal, which garnered more than 2,000 comment letters as a result of an idea with many objections from those the rule would adversely impact.
  2. Ideas have to be challenged. You never get to the best idea, McWatters said, unless you challenge the idea. He prefers you give him two or three ideas; he doesn't like to hear the word no. "Challenge ideas, challenge me, challenge NCUA based on what you know," McWatters said.
  3. When faced with a complex problem, generally the simplest solution is the best. Whatever the idea, McWatters said, ask, Is this the simplest approach?

Risk-Based Capital

McWatters said, as a lawyer with a long history of writing and studying legal opinions, he reads every word of the regulations and laws before him. He stops and reflects on them as he considers regulatory relief. In his opinion, the two-tiered system proposed in the risk-based capital rule runs contrary to the Federal Credit Union Act and is unlawful as drafted.

He indicated that as recently as 2007 the NCUA had a white paper saying you couldn't have a two-tiered risk-based system. That's changed 180 degrees in recent years backed only by a weak legal opinion that said a court "could" accept it. Contrary legal opinions have more strongly suggested that the provision would be "highly vulnerable to being overturned as unlawful."  

Regulatory Relief, FOM and MBL

McWatters said he's heard that 2015 is the year of regulatory relief, but he hasn't seen any of that yet despite his personal desire for regulatory relief. As NCUA turns focus to field of membership and member business lending rules, he suggested that he needs more feedback from credit unions regarding desirable regulatory changes that would permit credit unions to thrive.

Within the bounds of the law, there should be nothing in the regulations that impede a credit union's ability to make MBLs or grow its field of membership. McWatters quoted certain aspects of the FCUA that he feels provide credit unions more flexibility than is provided under current interpretations. Specifically, he focused on the exceptions to the MBL cap as listed in the Federal Credit Union Act.

McWatters said the solution to regulatory relief has to involve credit unions, and he stressed how important it is for credit unions to write and tell him what they think about the new proposals. "Submit a formal comment letter," he said. "The best thing that works with NCUA is to not be passive, but to say what resonates in your own words."