FROM THE OFFICE OF PUBLIC AFFAIRS

I. INTRODUCTION

In a recently enacted bill to keep the government running during the next year, Congress required the Treasury Department to conduct a study of several issues relating to credit unions. I should note at the onset that we at the Treasury did not ask to do this study. Congress devised it and assigned it to us. But it's now the law of the land. We take it seriously and we'll carry it out conscientiously, energetically, and fairly. More about that in a moment.

Now the ink had been dry on the new law for barely three weeks when I got a letter from Chris Kerecman -- your Director of Regulatory and Congressional Affairs -- inviting me to speak to you about the study. I know Chris from his days at the National Credit Union Administration, and I have the highest regard for him. But my first thought was that it was too soon to be talking about the study. We're just starting work on it. We certainly don't claim to have the answers now. And we'd rather be listening than talking.

But Chris urged me to go ahead and speak to you. He told me that credit unions were strongly interested in, and concerned about, the study. He said that it would be helpful for me to share some thoughts -- however preliminary -- on what the study involves and how we will go about conducting it.

II. THE STATUTORY STUDY REQUIREMENT

A. Scope of the Study

Let me begin by talking about what Congress has directed the Treasury to do in the study.

Section 2606 of the Omnibus Appropriations Act for 1997 requires the Secretary of the Treasury to conduct a study and evaluation of three major topics relating to credit unions. The first topic involves the National Credit Union Share Insurance Fund. The second involves the supervision and financial health of corporate credit unions. And the third involves the NCUA's regulations. The study is due September 30, 1997. We're to conduct it in consultation with the NCUA, the FDIC, and our own Office of the Comptroller of the Currency, which regulates national banks.

Let me now take a more specific look at the three topics I listed a moment ago. The first is the National Credit Union Share Insurance Fund. Congress has directed us to examine two specific issues relating to the Fund. To begin with, we're to study whether the 1 percent deposit that credit unions have made into the Fund should continue to be treated as an asset on credit unions' books, and thus as part of their equity capital -- or whether credit unions should, instead, expense it. We're to study whether the Fund should be administered by someone other than the NCUA, and what would be the implications of such a change. More generally, Congress also directed us to evaluate the NCUA's oversight of the insurance fund.

Second, Congress has required us to evaluate the nation's ten largest corporate credit unions. We're to do this "in cooperation with appropriate employees of other federal agencies with expertise in the examination of federally insured financial institutions." We're to look at the corporate credit unions investment practices. We're to examine their "financial stability, financial operations, and financial controls." And we're to review how the NCUA supervises them.

Third, Congress has instructed us to study the NCUA's regulations. Let me read you the exact language on this point. "The Secretary . . . shall conduct a study and evaluation of . . . the regulations of the [National Credit Union] Administration." Now you could conceivably read that language as calling for a study of all the NCUA's regulations, which occupy 250 pages in the Code of Federal Regulations. But quite a few of those regulations, however appropriate in themselves, have little connection to anything else even touched on in the law calling for the study. To take only a few examples, the NCUA has regulations on adjudicative hearings, advertising, the Community Development Revolving Loan Program, flood insurance, the Freedom of Information Act, group purchasing activities, investigations, money laundering, pension plan custodians, preserving records, and suing the government for property damage, personal injury, or death. Did Congress really intend us to delve into all of them? I think not. Instead, I'm inclined to believe the best approach would be for us to review the regulations dealing with corporate credit unions, the National Credit Union Share Insurance Fund, and the safety and soundness of credit unions.

B. Our Approach

Now that I've told you in general terms what we plan to cover, let me tell you how we plan to do it.

I think a few simple principles should guide our approach: Be fair and objective. Be thorough and rigorous. Be open and inclusive.

Let me emphasize that we come to this study with open minds, open ears, and an open door. We recognize that our work has just begun. And we believe that one way of making sure we do a good job is to talk with a wide range of people about the issues we must cover in the study.

I like to think we've already started the process of listening. We have already had very constructive initial meetings with the NCUA's Board of Directors and its senior staff. We appreciate their willingness to give us their perspective as we study these issues. We are currently scheduling meetings with CUNA and NAFCU. And we also look forward to meeting as well with other interested parties, including other financial institutions.

We plan to visit some corporate credit unions. And we want to be sure to talk with people like you -- people from credit unions large and small, rural and urban. We want to understand your perspective on the issues at stake in the study. Indeed, one appeal of your invitation was the opportunity to have a series of smaller meetings earlier today with a wide range of credit union officials. I certainly hope to continue these types of meetings.

III. CREDIT UNIONS AND THE IDEAL OF SELF-AUDIT

We at the Treasury want to set high standards for our work on the study. I'd like to close now by taking a few minutes to turn to a different subject and reflect on an important credit union ideal: the ideal of self-audit and renewal. This is a high standard that you, as credit unions, have set for yourselves. And there's a striking expression of this in the "Statement of Credit Union Operating Principles," a document endorsed by CUNA and adopted by the World Council of Credit Unions. This statement calls for all credit unions to pursue self-audit and renewal. More specifically, it says: "Credit union management and staff should regularly ask the question, `How have we acted like (or unlike) a credit union today?'"

This is not the sort of statement you see just anywhere. It's a call to reflection and renewal. It's a call to examine what you do -- and how you operate -- in light of credit union objectives.

The concept of self-audit carries with it an openness to change. Think back to that pair of questions: How have we acted like a credit union today? How have we acted unlike a credit union today? The whole idea of asking such questions is to try to rise above old habits and first reactions -- the easy, comfortable, usual way of doing things.

I believe that if self-audit and renewal is your goal, you don't just brush off new ideas. You look at what can best help you realize your objectives.

I can't tell you today what conclusions we'll draw in our forthcoming study. I can tell you that we'll approach it objectively. We'll be evenhanded in what we do. Whatever the outcome may be, whether you agree with it, disagree with it, or even if you're indifferent, I hope you'll look at this study -- and the process of sharing with us your views on it -- as an opportunity to reflect on what you believe is in the best interests of credit unions.

I hope that your own desire for self-audit will help us to identify improvements that will benefit credit unions in the years ahead. Surely that's a tall order. But it's one that is achievable, and it's a reasonable goal to set for oneself.

Thank you for the opportunity to speak here today. I hope you will continue your excellent work in communities across the state of California.