Honey, I Shrunk the NCUA Board

“Wow. Just wow.”

That was John Best’s response when I texted him from Las Vegas last Wednesday with the news that Donald Trump had fired Todd Harper and Tanya Otsuka- the two Democrat-appointed members of the NCUA Board.

It was a fascinating week to be in the presence of 500 credit union leaders at NACUSO’s Reimagine conference. After all, the internal machinations of an obscure federal financial insurance/supervisory agency aren’t exactly headline fodder for the general public. To the industry professionals assembled in Vegas, however, it was clear a seismic shift had occurred. (Despite our lighthearted title let me be clear- this is no laughing matter.)
  
At this point, none of the current administration’s norm-shattering moves should come as a surprise. Nonetheless, a mere 18 hours before the dismissals multiple experts at NACUSO’s podium voiced optimism that credit unions might be spared the turmoil upending other sectors.

Pointing to a board structure in which the Chairman (and Republican appointee) controlled the agenda while two Democratic appointees comprised the voting majority, former NCUA Chair Dennis Dollar suggested we should “expect to see a lot more compromise at the NCUA than the CFPB.” In a session on Hot CUSO Topics, attorney Amanda Smith of law firm Messick, Lauer and Smith pointed out that “only six of 30 independent agencies have seen director firings… so far.”

The NCUA makes seven. One nagging question is “why now, and why this agency?” Some have speculated it could serve as a dry run for a similar overhaul at the Federal Reserve, where President Trump has stepped up his social media attacks on Chairman Jerome Powell. Rumors the NCUA could become a less independent entity folded into the Department of Treasury as part of DOGE’s restructuring campaign also gained credence.

It’s likely no accident the terminations occurred one day prior to a scheduled NCUA board meeting, which was then cancelled for the lack of a quorum. Discussion of proposed NCUA workforce reductions was to be a key agenda item. While that discussion was shelved the layoffs- estimated at 18% of staff- proceeded on Thursday.

Interestingly, following the board firings the NCUA issued a memo claiming it has “delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member.” Former NCUA Chair Dollar pointed to precedent from his 2002 tenure which indicates the Chair’s authorization to act as a one-man board. This seems somewhat at odds with the decision to cancel last Thursday’s board meeting, however.

Dollar weighs in from a unique perspective, having been appointed to the NCUA Board by both Democratic and Republican presidents- Bill Clinton in 1997, elevated to Chair by George W Bush in 2001. It’s a degree of bipartisanship that seems quaint by today’s standards, although the parallel with Fed Chair Jerome Powell cannot be overlooked. Powell was elevated to Fed Chair by Donald Trump in 2018 and reappointed by Joe Biden in 2022.

The three six-year NCUA board terms are staggered to expire each two years, allowing for two appointments each presidential term. Rules also stipulate that no more than two members can represent the same party at any one time- giving rise to the irony that Todd Harper, who Donald Trump just fired, was technically appointed by Trump in 2019.

During a NACUSO panel rapidly and deftly assembled to address the elephant in the room, Brownstein Policy Director Zach Pfister postulated that a handpicked board chosen by each new president would result in the regulatory “pendulum swinging far more often”- hardly a desirable recipe for business planning. Regarding the possibility of the NCUA being rolled into Treasury, Defense Credit Union Council Chief Advocacy Officer Jason Stverak cautioned against “a revolving door of former JP Morgan or Goldman Sachs executives setting credit union policy.”

The consensus across these experts is that agency consolidation is more easily said than done, and that the structural and statutory distinctions between banks and credit unions likely render any envisioned supervisory efficiencies unachievable. Nonetheless, events of the past few months have shown us that assuming rational thinking will naturally prevail is not a winning strategy.