By Mary Martha Fortney
NASCUS commends the credit union industry for its recognition of the need for cooperation between state and federal regulators to maintain the strength of the credit union system. The dual chartering system gives credit unions the option to choose the charter that best fits the unique needs of its members. Also, it benefits the 48 state governmental and U.S. territorial agencies that charter, regulate and examine the nation’s state-chartered credit unions by providing forums for regulatory and legislative operational innovation.
As the only organization dedicated to the defense and promotion of the dual chartering system, NASCUS works to preserve the charter choice. NASCUS believes that the strength and health of the credit union system, both state and federal, rely on the preservation of the principles of the dual chartering system.
A credit union’s ability to choose its charter creates healthy competition and provides an incentive for regulators (both state and federal) to maximize efficiency in their examinations, reduce costs and take innovative approaches to regulation while maintaining high standards for safety and soundness. These examination efficiencies and innovative approaches in turn, once proven successful, spread throughout the system.
The different governing laws for state and federal credit unions are certainly constructive. Credit union boards of directors and CEOs have the ability to examine the qualities of each charter and determine which charter will best meet the goals of the institution and its members.
Moreover, the relationship between state regulators and credit union CEOs allows for effective communication and cooperation. State regulators have a firm grasp of exactly how their process of supervision impacts the credit unions they regulate. Conversely, CEOs of state-chartered credit unions realize how their business practices can compliment and meet the public policy expectations in their states.
The examples of dual chartering in action are numerous. The National Credit Union Administration member business lending rules were inspired by the states that promulgated state specific MBL rules. What began as business lending relief for state credit unions in Texas, Washington, Wisconsin, Maryland, Connecticut and Oregon has now evolved into business lending relief for all federally insured credit unions. That is dual chartering at work.
Other examples of innovations that began at the state level and spread throughout the credit union system are share draft accounts, mortgage loans, member business loans, acceptance of non-member deposits and excess insurance. The ability of federal credit unions to branch interstate provided the impetus for state regulators to develop relationships to facilitate state credit union branching.
Dual chartering does more than just promote innovation, however.
The concept of dual chartering also provides an invaluable safety valve for the credit union system in its ability to allow credit unions to change charters between state and federal. While there are many reasons why credit unions seek to change charter or merge it is clear that without dual chartering opportunities, many may have left the credit union system entirely. The diversity of the credit union system is a source of its ongoing strength, and safety and soundness.
The struggles faced by the credit union movement should not be seen as a state versus federal charter problem. Instead, industry leaders should be proud of the diversity in the movement. Without the opportunity to choose charter, regulator or controlling body of law, changes in powers and services would come more slowly. Dual chartering ensures that the federal and state credit union systems are whetstones for one another – each challenging the other to constantly improve.
The entire credit union system – regulators, credit unions, leagues, associations and members (consumers) – needs to understand importance of maintaining a viable and effective dual chartering system. By providing an option, the dual chartering system keeps those voices within the system rather than losing them.
NASCUS remains committed to its mission: to enhance state credit union supervision and advocate a safe and sound state credit union system. A highly effective state credit union system benefits the entire credit union community and is essential to maintaining the dual chartering system.
Mary Martha Fortney is president/CEO of the National Association of State Credit Union Supervisors.
