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Credit Union FOM Diversification -
Why It's Good For Risk Management
By Dennis Dollar, NCUA Chairman
 As
head of the agency responsible for regulating America's federal
credit unions, I feel that I would be derelict in my duties
if I did not address the significant risk management issues
involved in enhancing their field of membership diversification
options - issues which are at the crux of NCUA's recent FOM
proposal.
FOM diversification is an essential risk management tool
for America's credit unions. The law allows it. The courts
have upheld it. And NCUA is acting as a responsible safety
and soundness regulator by furthering it where appropriate
under the law and those court decisions.
The NCUA Board's approval last November of a well-balanced
regulatory proposal to update NCUA's field of membership rules
is a necessary and natural progression which is both responsive
to a changing marketplace and fully consistent with the letter
and spirit of the Credit Union Membership Access Act passed
by Congress in 1998.
This FOM proposal, up for final consideration this spring
after an official comment period during which we hope to hear
from affected credit unions nationwide, is as much a risk
management issue as it is an extension of member service issue.
Basically, NCUA's proposed update to its FOM rules is necessary
for providing federal credit unions with access to more diversified
fields of membership which can help mitigate the future risk
of losing a credit union because of economic uncertainty,
employer group downsizing or the loss of a significant sponsor.
Each provision in this proposal, from the trade, industry
or professional (TIP) occupational charter to the recognition
that ATMs and shared branches are legitimate sources from
which to deliver credit union services at lower cost than
expensive branch locations, is designed to provide greater
risk management options through diversification for federal
credit unions who seek reasonable opportunities for planned
and managed growth.
The key word in the Credit Union Membership Access Act (CUMAA)
passed in 1998 was "access" for potential members
to have the choice to join a credit union. However, it cannot
be over-emphasized that the diversification of that access
has a long-term risk management component that NCUA must also
consider.
The existing rules have proven to be successful at extending
access to credit union services to millions of Americans from
all walks of life, but NCUA must continue to make sure our
field of membership rules evolve to provide appropriate diversification
options in a dramatically changing financial marketplace.
That marketplace is certainly changing as banks, insurance
companies and brokerage firms are all benefiting from the
financial modernization options available to them under the
1999 Gramm-Leach-Bliley Act. NCUA must likewise move our rules
forward in a measured way to enable credit unions to have
all of the tools available under CUMAA to diversify their
fields of membership and provide opportunities for planned
and managed growth in that changing marketplace.
The NCUA Board passed FOM rules in 1999 and 2000 which were
specifically designed to move field of membership diversification
options in a progressive and systematic way. This process
has now evolved with over four years of experience. The base
lines have been established and the previous rules have been
challenged and upheld in federal court. It is reasonably time
to update the rules again.
The Board, with our November 2002 unanimous vote across party
lines, has produced a reasonable and appropriate field of
membership update which will result in the evolution of more
credit union services being offered to more Americans from
all walks of life. It will also result in greater diversification
options for the credit unions themselves to have planned and
managed growth under the federal charter. The Board is to
be commended for both its analysis and leadership in an area
that is always controversial but absolutely crucial for the
long-term viability of America's credit unions. I believe
this proposal recognizes the importance of both expanded consumer
choice and enhanced safety and soundness. It recognizes both
the law and the court decisions interpreting our earlier actions
under that law. It contains both necessary restrictions and
enhanced diversification opportunities.
We have a responsibility to respect the restrictions contained
within the federal law, but we also have a responsibility
to empower the opportunities contained within that same law.
In doing so, I believe we will be pleased with the result
that we will have stronger credit unions. We will have safer
and sounder credit unions. We will have more diversified fields
of membership. And, most importantly, NCUA's commitment to
Access Across America - the word "access" derived
from the Credit Union Membership "Access" Act -
will be even more of a reality.
Our proposed update to NCUA's FOM rules will make the Credit
Union Membership Access Act work more effectively for the
over 80 million Americans who are depending on America's credit
unions but it will also strengthen those credit unions through
the diversification opportunities it provides. We encourage
comment from all credit unions and other interested parties.
Comment letters can be mailed to Becky Baker, Secretary of
the NCUA Board, 1775 Duke Street, Alexandria, VA 22314 or
e-mailed to regcomments@ncua.gov.
Dennis Dollar was appointed Chairman of the National Credit
Union Administration (NCUA) by President Bush in 2001. A former
two-term member of the Mississippi House of Representatives,
Chairman Dollar served as President and CEO of the Gulfport
VA Federal Credit Union in Gulfport, Mississippi, prior to
his confirmation to the NCUA Board in 1997.
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