Union contract of the day, NCUA edition

By Felix Salmon
December 25, 2010
Robin Sidel reports on the NCUA's new budget:

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Robin Sidel reports on the NCUA’s new budget:

The 2011 budget for the National Credit Union Administration, which insures about 7,400 credit unions, will rise 12% from the prior year, fueled partly by contractual pay raises for unionized employees…

The agency’s employee pay and benefits are set to climb 12% to $163.2 million in the current fiscal year. Most of the jump is unavoidable because of contractual obligations to unionized employees, who represent about 80% of the NCUA’s work force.

I would love to see more detail on this. Yes, the NCUA is hiring more examiners. And yes, I’m sure that the cost of benefits is rising fast. But 12%?

The NCUA explains, in a press release, that 37% of the increase in pay and benefits is due to a “6.1% pay increase mandated by the Three Year Collective Bargaining Agreement entered into in 2008″.

It’s worth bearing three things in mind, here. Firstly, the NCUA failed miserably in its job over the past three years, overseeing as it did the complete collapse of the corporate credit unions which underpinned pretty much the entire credit-union system. Secondly, we were already in a highly disinflationary world in 2008, when the NCUA happily signed off on a 6.1% annual pay increase in 2011. And thirdly, credit unions in general, and their trade associations in particular, have all been critical of these pay hikes.

It’s important that financial regulators can pay well to attract talented staff. But collective bargaining agreements with across-the-board 6.1% pay rises are not a smart way of doing that. And, frankly, there’s not much evidence that the NCUA’s staff is particularly talented: if you were a talented financial regulator, would you want to work for the NCUA?

It’s ridiculous that the NCUA can simply vote itself as much of a budget increase as it likes, showering money on its headquarters and its employees, sticking the cost onto the credit unions, with no real checks or balances at all. At most institutions, there’s some incentive somewhere to keep the budget in check. At the NCUA, there seems to be none.

But more to the point, it’s ridiculous that the NCUA exists at all: it should by rights have been abolished, along with the OCC, in Dodd-Frank. One thing pretty much everybody agrees on is that we have too many regulators; the FDIC should simply absorb the NCUA, along with its examiners and its insurance fund. The examiners would be part of a larger, higher-profile regulator with real teeth; occasional failures would be less prone to cause an unfair burden on credit unions; and credit unions in general would be brought closer into the financial mainstream. But sadly, if this never happened in Dodd-Frank, it’s not going to happen at all.

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