Wednesday, September 28, 2011

NCUA No Need for Cost-Benefit Analysis on All Proposed Rules

In a speech to NASCUS State System Summit, NCUA Board member Michael Fryzel was dismissive of the notion that the agency should conduct a cost-benefit analysis regarding every regulation the agency proposes.

Board member Fryzel said:

"I also do not believe we should write a report on the cost-benefit analysis of every regulation NCUA proposes. Doing so would be too burdensome, or necessitate hiring additional employees. In any event, the intended benefits are generally obvious in the regulations we propose, and, indeed, many comments point out potential costs -- we need not duplicate those efforts."

However, the Office of Management and Budget (OMB) in September 2003 wrote:

"A good regulatory analysis should include the following three basic elements: (1) a statement of the need for the proposed action, (2) an examination of alternative approaches, and (3) an evaluation of the benefits and costs—quantitative and qualitative—of the proposed action and the main alternatives identified by the analysis."

OMB goes on to write that good analysis is transparent and provides specific references to all sources of data.

It is unacceptable for NCUA to state that the intended benefits of the proposed rule are obvious and that commenters can point out the potential costs.

Furthermore, Fryzel's comment places the agency on a possible collision course with Senator Shelby of Alabama. Senator Shelby recently introduced the Financial Regulatory Responsibility Act of 2011 (S 1615).

According to the press release, "the legislation holds financial regulators accountable for rigorous, consistent economic analysis on every new rule they propose. It requires them to provide clear justification for the rules, and to determine the economic impacts of proposed rulemakings, including their effects on growth and net job creation. This bill also improves the transparency and accountability of the regulatory process and reduces the burdens of existing regulations. In addition, the legislation mandates that if a regulation’s costs outweigh its benefits, regulators are barred from promulgating the rule."

1 comment:

  1. To help NCUA Board Member Fryzel, the following required reading is needed:

    Executive Order 13579, July 22, 2011, "Regulation and Independent Regulatory Agencies". The White House clearly mandates such a process, and that it be conducted by someone with sufficient distance from staff who write and implement the regulations, so the G.C.'s Office where such review activities are currently tasked should be stripped of those duties--especially with a track record of having never found Agency regulations costly and/or burdensome. And NCUA has 120 days to get their act together on this Order from the Executive Office of the President.

    Or its own Interpretive Ruling and Policy Statements (IRPS) 03-2 and 87-2. Actions shaped by statutory mandates of the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) and Executive Order 12866

    Or just read the Federal Credit Union Act's unambiguous language stating that only the Chairman of NCUA can speak for the Agency. Mr. Fryzel's comments, even to a room full of regulators, should have been clearly framed as his own personal opinion.

    A refresher course on these matters seems necessary within FDIC, other bank regulators, and FFIEC, too. The cumulative regulatory burden for small financial institutions of all types is a newly emerging systemic risk; regulatory costs destroying economic vitality and marketplace competitiveness of small financial providers puts both the institution, and the respective deposit insurance funds, in needless jeopardy.



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