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for Board Independence and Objectivity Are Similar to Other Financial 
Regulators, but Opportunities Exist to Enhance Its Governance 
Structure' which was released on December 1, 2006. 

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Washington, DC 20548: 

United States Government Accountability Office: 

November 30, 2006: 

The Honorable William M. Thomas: 
Chairman, Committee on Ways and Means: 
House of Representatives: 

Subject: Corporate Governance: NCUA's Controls and Related Procedures 
for Board Independence and Objectivity Are Similar to Other Financial 
Regulators, but Opportunities Exist to Enhance Its Governance 
Structure: 

Dear Mr. Chairman: 

During recent congressional hearings and in public speeches, statements 
made by the National Credit Union Administration's (NCUA) Chairman and 
another board member raised congressional interest in the ability of 
NCUA to collect and objectively analyze data on credit union membership 
and executive compensation. More generally, these statements also 
raised issues about the agency's overall vigilance as a regulator and 
the independence and objectivity of NCUA's board and senior staff from 
the industry being regulated. 

As a result, you asked us to expand upon our current work looking at 
the tax-exempt status of credit unions to include a review of 
governance policies and procedures for NCUA's board of directors and 
senior staff and more specifically how the policies and procedures 
address independence and objectivity issues.[Footnote 1] This 
correspondence (1) compares controls and related procedures applicable 
to NCUA that help ensure the independence and objectivity of its board 
members with those of other federal financial regulatory agencies and 
relevant recommended management practices identified in academic and 
industry literature and (2) describes NCUA's use of Schedule C staff 
compared with that of other federal financial regulatory 
agencies.[Footnote 2] 

To address our objectives, we reviewed statutory criteria for the 
selection of board members and commissioners at NCUA and six other 
federal financial regulatory agencies: the Commodity Futures Trading 
Commission (CFTC), Farm Credit Administration (FCA), Federal Deposit 
Insurance Corporation (FDIC), Federal Housing Finance Board (FHFB), the 
Board of Governors of the Federal Reserve System (Federal Reserve), and 
the Securities and Exchange Commission (SEC). We selected these six 
agencies for our comparison because they are all financial regulators 
with either a board of directors or a commission as their governing 
structure, similar to NCUA. For each of the agencies, we analyzed and 
compared the statutory criteria for qualifications of board or 
commission membership, the backgrounds and experience of board members 
and commissioners, statutory requirements for board structure and 
composition, agency guidance and other related documents, and the 
agencies' use of Schedule C staff. We interviewed officials from the 
staff and board of NCUA, as well as officials from other federal 
financial regulatory agencies. We also analyzed academic and industry 
literature on recommended management practices as the literature 
relates to board composition, structure, and independence issues. We 
conducted our work in Washington, D.C., from June 2006 through November 
2006, in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

Similar to the other regulators, NCUA is subject to statutory criteria 
and federal standards on the independence and objectivity of board 
members, but five of the six other regulators have additional controls 
and procedures relating to independence. More specifically, the primary 
criteria and standards addressing independence and objectivity of board 
members that we identified at NCUA and the other six regulators are 
based on (1) statutory criteria for individual qualifications and the 
composition of the boards and commissions we reviewed, and (2) rules 
promulgated by the Office of Government Ethics (OGE) setting forth 
ethical standards for employees in the executive branch.[Footnote 3] 
For example, the OGE regulations address ethics and financial conflicts 
of interest matters that apply to all federal employees, and the 
Federal Credit Union Act (FCUA), like the enabling legislation of five 
of the six other regulators, addresses board independence through such 
provisions as fixed term limits for board members and apportionment of 
political party representation.[Footnote 4] Unlike NCUA, five of the 
six other regulators have additional controls and procedures that 
address independence, including agency-specific rules that address 
conflicts of interest and independence, or the recognition of the 
importance of independence in the agency's mission statement or values 
written in their strategic plans. The qualifications for NCUA board 
membership, as written in FCUA, are similar to the qualifications for 
board members or commissioners at four of the six other agencies we 
reviewed in that they seek to ensure that nominees are suited by 
education or experience for the positions they are to serve. In 
addition, we compared the professional backgrounds and qualifications 
of current and prior NCUA board members and found them to be similar. 
Our review of available literature indicated that NCUA's board follows 
several recommended management practices for independence, many of 
which are included in FCUA. However, there is one notable exception. 
While NCUA's enabling legislation limits the NCUA board to three 
members, some academic and industry sources suggest there should be a 
minimum of five members on a board of directors to help maintain 
independence, retain needed expertise, and enable continuity of 
leadership. Further, some of NCUA's board members told us that having a 
three-member board sometimes made communicating among the members 
complicated because of the Government in the Sunshine Act, which 
largely limits nonpublic meetings of the majority of the board (in this 
case, two board members).[Footnote 5] Additionally, we recommended in 
1991 that NCUA's board be expanded to five members, in part, to achieve 
a broader perspective on financial market regulatory and insurance 
issues.[Footnote 6] 

NCUA's use of Schedule C positions generally was similar to the 
practices at five regulators that we contacted that had Schedule C 
staff. The selection of Schedule C staff rests with the NCUA Chairman 
or individual board member, subject to White House approval, and does 
not require input from NCUA career staff. We reviewed the backgrounds 
of the seven NCUA Schedule C appointees and identified four who were 
formerly affiliated with the same credit union industry trade group 
(three were former employees and one held key positions in various 
committees of the trade group). Of the four NCUA Schedule C appointees 
with prior ties to the trade group, two are senior policy advisors to 
NCUA board members, one is the Director of Public Affairs and 
Congressional Relations, and one is a staff assistant to a board 
member. NCUA officials told us that Schedule C appointees that have 
trade group experience are viewed as beneficial to board members in 
discharging their regulatory responsibilities. In particular, the 
officials explained that the senior policy advisors that have come from 
credit union industry trade groups have brought an in-depth 
understanding of credit union issues as well as industry contacts. 

This correspondence includes a recommendation that the NCUA Chairman 
consider adopting practices that the other financial regulators use to 
enhance NCUA controls for independence and objectivity. Further, 
consistent with our 1991 report, we believe that consideration should 
be given to exploring the potential benefits and costs associated with 
increasing the number of NCUA board members. 

We provided a draft of this report to the Chairman, NCUA, and the heads 
or designees of CFTC, FCA, FDIC, FHFB, the Federal Reserve, and SEC for 
their review and comment. NCUA provided written comments which are 
discussed at the end of this correspondence and are reprinted in 
enclosure 1. NCUA, FCA, FDIC, and the Federal Reserve provided 
technical comments that we incorporated into the report, as 
appropriate. With respect to our recommendations, NCUA stated it was 
not opposed to adopting agency-specific ethics guidelines or including 
independence and objectivity as part of its values and mission in 
future versions of its strategic plan. In this regard, NCUA stated that 
it explicitly included the concept of independence and objectivity in 
its 2007 Annual Performance Budget. NCUA also stated that it did not 
agree that Congress should increase the size of the NCUA board. NCUA 
stated that in its view, the costs and reduced efficiencies outweigh 
any potential benefits. Specifically, NCUA estimated that the cost of 
salaries, benefits, and other expenses for two additional board members 
and their staff would be at least $1.1 million annually. Moreover, NCUA 
stated that increasing the size of the board would make agency 
processes more time-consuming and less efficient. While we acknowledge 
there would be some financial and potential efficiency costs associated 
with increasing the board size at NCUA, we continue to believe it would 
be worthwhile to review the potential benefits an expanded board may 
provide. NCUA has sometimes experienced lengthy board vacancies, which 
resulted at times in a board of less than three active members, 
potentially offsetting the full benefits of a multimember board 
structure. The benefits of a larger board could include, among other 
things, continuity of expertise and decision making on the board, 
improved communication among board members, and greater parity with the 
other regulatory agencies. Consistent with the literature on corporate 
governance practices, we believe the size of the board should be 
periodically reviewed to ensure that the agency has the most 
appropriate board size for its current resources and responsibilities. 

Background: 

NCUA is an independent agency of the executive branch and has oversight 
authority for federally chartered credit unions. FCUA requires federal 
credit unions to obtain federal share (deposit) insurance from the 
National Credit Union Share Insurance Fund. This fund, administered by 
NCUA, also provides share insurance to most state-chartered credit 
unions, and NCUA shares oversight responsibilities for safety and 
soundness issues with state regulators in these cases. As of December 
2005, there were 958 employees at NCUA and the agency oversaw nearly 
8,700 federally insured credit unions--about 5,400 federally chartered 
and 3,300 state-chartered--with about $679 billion in total 
assets.[Footnote 7] 

FCUA was amended in 1978 to create a three-member board of directors to 
manage NCUA.[Footnote 8] According to NCUA representatives, the change 
in leadership structure from a single administrator was in response to 
the more complex and increasing responsibilities of NCUA and to make 
NCUA's governing structure more like those of other federal regulators 
of financial institutions.[Footnote 9] FCUA specifies that the 
President, with the advice and consent of the Senate, appoint each of 
the NCUA board members to 6-year staggered terms. In appointing the 
members of the board, the President also designates the chairman. 
Additionally, the act specifies that not more than two members of the 
board be members of the same political party. Further, FCUA specifies 
that members shall be chosen to represent the public interest and 
consideration be given to individuals with education, training, or 
experience relating to a broad range of financial services, financial 
services regulation, or financial policy. Finally, according to the 
act, not more than one board member may be appointed who, at the time 
of appointment, was or had recently been involved with any insured 
credit union as a committee member, director, officer, employee, or 
other institution-affiliated party. 

Controls Addressing NCUA Board Member Independence Generally Are 
Similar to Those of the Other Federal Financial Regulators, with Some 
Notable Exceptions: 

As is the case with the other regulators we reviewed, provisions in 
NCUA's enabling legislation and OGE's rules on independence guide NCUA 
independence and objectivity standards. NCUA's current board members 
have professional experience and knowledge that were generally similar 
to the experience and knowledge of past NCUA board members. NCUA 
follows several of the recommended management practices for board 
independence that we identified in our review of relevant literature 
and research, although some sources, including GAO, recommended a 
larger board size. 

Controls over Board Independence and Objectivity at NCUA and the Other 
Regulators Primarily Are Based on the Agency's Enabling Legislation and 
Executive Branch Ethics Rules: 

Standards and regulations addressing the independence and objectivity 
of NCUA board members generally are similar to those at other financial 
regulatory agencies, but NCUA officials stated they have no additional 
policies or controls outside of what is provided in law. Most of the 
policies applicable to NCUA and these other agencies that address board 
member independence are established in law specific to the agencies, 
specifically each agency's enabling legislation. Table 1 shows the 
controls in place at NCUA and the six other agencies we reviewed. For 
example, FCUA addresses independence of NCUA's board members from 
political pressures by creating fixed term limits for board members and 
limiting the number of board members who are members of the same 
political party. In the enabling legislation of the other agencies we 
reviewed, all six include fixed term limits, and five of the six limit 
the number of board members or commissioners who are members of the 
same political party. NCUA and the six other agencies identified OGE's 
rules for ethical conduct as another authority for addressing board 
independence and objectivity. In addition to the controls listed in 
table 1, FCUA addresses the independence of NCUA's board members from 
professional associations by limiting the number of board members who 
have recent credit union experience. 

Table 1: Comparison of Agency Controls and Procedures Addressing Board 
Member Independence and Objectivity: 

Control: Board members / commissioners serve a fixed term; 
NCUA: check; 
CFTC: check; 
FCA: check; 
FDIC: check; 
FHFB: check; 
Federal Reserve: check; 
SEC: check. 

Control: Have political party affiliation rules; 
NCUA: check; 
CFTC: check; 
FCA: check; 
FDIC: check; 
FHFB: check; 
Federal Reserve: check; 
SEC: check. 

Control: Undergo White House nomination and Senate confirmation 
process; 
NCUA: check; 
CFTC: check; 
FCA: check; 
FDIC: check; 
FHFB: check; 
Federal Reserve: check; 
SEC: check. 

Control: Subject to OGE ethical standards and federal ethics rules; 
NCUA: check; 
CFTC: check; 
FCA: check; 
FDIC: check; 
FHFB: check; 
Federal Reserve: check; 
SEC: check. 

Source: GAO. 

[End of table] 

According to officials at NCUA and the six other financial regulatory 
agencies, they relied on OGE rules and ethics guidance on financial and 
personal conflicts of interest to address board member independence. 
Among other things, OGE's Standards of Ethical Conduct for Employees of 
the Executive Branch prohibit federal employees from having financial 
and personal conflicts of interest that conflict with their official 
duties. OGE also prohibits federal employees from accepting gifts worth 
more than $20 that are presented to the employees because of their 
position or by prohibited sources, which for NCUA would be a regulated 
credit union or its representatives. During our interviews, NCUA 
officials focused on the importance of identifying potential financial 
conflicts of interest; as required by the Ethics in Government Act, 
NCUA requires board members to file a financial disclosure statement 
annually with the agency-designated ethics officer.[Footnote 10] NCUA's 
ethics officer serves as the primary contact for board members for 
guidance on ethics matters, and frequently interacts with board 
members. The officer also reviews gifts and invitations sent to board 
members for any possible conflicts or to determine prohibitions. When 
financial conflicts of interest arise, board members either must recuse 
themselves from any matter involving their financial interest or divest 
the asset. When we spoke with officials at the six other agencies, they 
all pointed to the same OGE financial disclosure policy as their 
primary tool for monitoring and enforcing independence from financial 
conflicts of interest. 

According to NCUA officials, NCUA exclusively relies on standards 
contained in FCUA and OGE ethics rules to monitor board member 
independence, while officials from five of the six other agencies we 
reviewed stated their agencies are subject to some additional rules, 
some of which are designed to maintain independence from the industry 
they regulate. For example, SEC had established a "Canons of Ethics," 
which the agency uses in addition to OGE's guidance. FHFB has adopted 
written standards of conduct addressing, among other things, 
relationships and communications between FHFB directors and employees 
and entities subject to FHFB supervision. CFTC, FCA, and the Federal 
Reserve also have additional rules for their board members and agency 
employees regarding asset holdings specific to the industries they 
regulate. 

In its 2006-2011 strategic plan, NCUA did not include the terms 
"independence" or "objectivity" either as a value or as part of its 
mission statement, but two of the six other financial regulatory 
agencies included independence in their strategic plans as part of 
mission and value statements. Generally, agencies write and adopt value 
and mission statements in their strategic plans to guide the 
organization with clear goals and operating principles. FHFB listed 
independence as its first value, stating that "the Finance Board is the 
arm's length regulator of the FHLBanks [Federal Home Loan Banks] and OF 
[Office of Finance]."[Footnote 11] In another example, the Federal 
Reserve included "independence of views" as one of its guiding values. 

NCUA board members said NCUA has no controls or procedures in place 
that directly addressed objectivity. Although NCUA has no official 
guidance, the board members stated that when considering issues related 
to objectivity, they rely on OGE's rules and guidance, NCUA's strategic 
plan, and FCUA to guide their regulatory policy decisions. 
Specifically, one board member stated that objectivity, as well as 
independence, had been a central theme of the White House interviews 
during the nomination process, and that although NCUA has no written 
guidance for objectivity, the obligation to be objective was well 
understood among board members. 

NCUA Board Member Qualifications and Professional Backgrounds Generally 
Are Similar to Those for Other Financial Regulators: 

The professional qualifications of board members at NCUA and at four of 
the six other financial regulatory agencies are determined statutorily, 
but are broadly similar. NCUA and the other agencies have no authority 
in deciding who constitutes the board of directors or commission, as 
this authority rests solely with the President and the Senate. FCUA 
specifies that when appointing NCUA board members, the President shall 
give consideration to individuals who have education, training, or 
experience relating to financial services, financial services 
regulation, or financial policy. These qualifications are similar to 
those at four of the six other financial regulatory agencies we 
reviewed. Table 2 presents board member qualifications and restrictions 
as stated in each agency's enabling legislation. For example, both NCUA 
and FCA list experience with and knowledge of financial regulation as 
one possible qualification for board membership. NCUA's statute also 
states that no more than one member of the board may have recent 
involvement with an insured credit union as a committee member, 
director, officer, employee, or other institution-affiliated party, 
although including an individual with recent credit union experience on 
NCUA's board is not a requirement. FDIC's statute requires that one of 
the three appointed members must have state bank supervisory 
experience. Of the six other agencies, the Federal Reserve and SEC did 
not have specific language regarding prior professional experience. 

Table 2: Statutory Appointment Considerations for Board or Commission 
Members, Including Professional Experience, by Selected Agencies: 

Regulator (number of board members): NCUA (3); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* In considering an appointment to the NCUA board, the President shall 
consider individuals who are specially qualified to serve on the board 
by virtue of their education, training, or experience relating to a 
broad range of financial services, financial services regulation, or 
financial policy; 
* Not more than one member of the board may be, or have recently been, 
involved with any insured credit unions as a committee member, 
director, officer, employee, or other institution-affiliated party. 

Regulator (number of board members): CFTC (5); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* The President shall select for nomination persons who have 
demonstrated knowledge in futures trading or its regulation, or the 
production, merchandising, processing, or distribution of one or more 
of the commodities or other goods and articles, services, rights, and 
interests covered by the Commodity Exchange Act; 
* In nominating persons for appointment, the President shall seek to 
ensure that the demonstrated knowledge of the commissioners is balanced 
with respect to the areas listed above. 

Regulator (number of board members): FCA (3); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* The board shall consist of three members, who shall be citizens of 
the United States and broadly representative of the public interest; 
* The President shall appoint members of the board who are experienced 
or knowledgeable in agricultural economics and financial reporting and 
disclosure; experienced or knowledgeable in the regulation of financial 
entities; or have a strong financial, legal, or regulatory background. 

Regulator (number of board members): FDIC (5); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* Three members shall be appointed by the President, from among 
individuals who are citizens of the United States, one of whom shall 
have state bank supervisory experience; 
* One shall be the Comptroller of the Currency; 
* One shall be the Director of the Office of Thrift Supervision. 

Regulator (number of board members): FHFB (5); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* The appointed directors shall be among persons with extensive 
experience or training in housing finance or with a commitment to 
providing specialized housing credit; 
* Not more than one appointed director shall be from any single 
district of the Federal Home Loan Bank System; 
* At least one director shall be chosen from an organization with more 
than a 2-year history of representing consumer and community interests 
on banking services, credit needs, housing, or financial consumer 
protection; 
* One director shall be the Secretary of Housing and Urban Development. 

Regulator (number of board members): Federal Reserve (7); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: 
* In selecting members of the board, not more than one shall be 
selected from any one Federal Reserve district; 
* The President shall have due regard to a fair representation of the 
financial, agricultural, industrial, and commercial interests, and 
geographical divisions of the country. 

Regulator (number of board members): SEC (5); 
Considerations regarding education, knowledge, professional experience, 
and public interest served, or other qualifications: None.[A]. 

Sources: Commodity Exchange Act, 7 U.S.C  2a(2); Farm Credit Act, 12 
U.S.C. 2242; Federal Deposit Insurance Act, 12 U.S.C.  1812; Federal 
Home Loan Bank Act, 12 U.S.C.  1422a; Federal Reserve Act, 12 U.S.C.  
241; Federal Credit Union Act, 12 U.S.C.  1752a; Securities Exchange 
Act, 15 U.S.C.  78d. 

[A] The Securities Exchange Act and the Federal Reserve Act do not 
specify professional background or knowledge requirements for SEC 
commissioners and Federal Reserve governors. 

[End of table] 

We also reviewed the professional experience of NCUA's current board 
members and compared their experience with that of the 14 former NCUA 
board members. The current board members fulfill FCUA's guidelines for 
experience. Specifically, one member has recent credit union 
experience, one has financial policy experience, and the third has 
financial services experience. We also found that current and past 
board members had similar professional experiences and qualifications. 
For example, current board members previously worked as lawyers, state 
senators, and non-credit union bankers. Of NCUA's 14 prior board 
members, 3 had been lawyers, 3 had been state or federal legislators, 
and 3 had been non-credit union bankers. 

NCUA Board Follows Several Recommended Practices for Independence, but 
Its Size Does Not Reflect Recommended Practices and May Hinder 
Communication among Board Members: 

Our review of available literature indicated NCUA's board follows 
several recommended management practice standards, many of which are 
written into law. We reviewed literature specific to recommended 
management practices for independence at federal regulatory agencies 
and were able to identify some management practices applicable to 
NCUA.[Footnote 12] Practices and policies for independence at federal 
regulatory agencies build upon the following characteristics and 
structures: 

* a multimember commission helps ensure consistency and continuity of 
decision making over time and would be less likely to be influenced by 
the views of any one individual; 

* separation of regulatory and operations functions; 

* freedom from direct political pressure; 

* fair and transparent procedures; and: 

* an arm's length relationship with regulated firms, consumers, and 
other private interests. 

FCUA provides for the multimember board by requiring a three-member 
board of directors, and addresses freedom from direct political 
pressure by having board members serve fixed terms and limiting the 
number of members who may be members of the same political party. As 
provided for in the statute, NCUA Delegations of Authority separate the 
regulatory and operations functions by making the board responsible for 
regulatory policy functions and field examiners and staff responsible 
for operational functions. Further, the Government in the Sunshine Act 
helps ensure transparency by requiring that complete transcripts, 
electronic recordings, or minutes (as specified in the act) of board 
meetings closed to the public be made publicly available, unless the 
agency determines under exemptions provided in the act that such 
information should not be disclosed. NCUA also allows for and 
encourages public comment on credit union policy decisions before they 
are finalized. NCUA board members stated that their relationships with 
member credit unions and trade groups are important for understanding 
the issues affecting the credit union industry, but that NCUA gathers 
information from all sources before making any policy decisions and 
weighs the information from NCUA examiners and career staff more 
heavily than information from other sources. 

We also reviewed literature on corporate governance that related to 
recommended management practices for board structure and size, which 
generally suggests boards of directors have a minimum of five 
members.[Footnote 13] Corporate governance literature typically is 
targeted to publicly traded corporations or nonprofit organizations and 
not federal regulatory agencies, but we identified some elements of the 
recommended management practices that are applicable to NCUA. Among the 
sources we reviewed, several stated that board size is not one-size- 
fits-all and should be based on the needs and complexity of the 
organization, and some also suggest a minimum of five members on a 
board of directors would be needed to maintain independence and retain 
needed expertise. Furthermore, a board that is too small may allow for 
one member to exert greater influence over the other members. The 
literature also suggests the size of the board should be reevaluated 
periodically to ensure that it remains appropriate for the 
organization. Situations that could potentially detract from a larger 
board's effectiveness include increased difficulties in reaching 
consensus on issues and the ability of the board to act expeditiously 
on matters needing its attention. 

Although FCUA provides for a multimember board, the board has not 
always experienced continuity in full membership. Figure 1 shows the 
periods during which the NCUA board had fewer than three active 
members. When a board has a vacancy, it could potentially offset the 
benefits of a multimember board structure, such as a diversity of 
perspectives, experience, and political party representation among 
board members. Since 1990, there have been two periods of 12 or more 
consecutive months when NCUA's board had two active members, and in a 
recent 45-day period, NCUA has had one active board member. 

Figure 1: NCUA Board Membership Vacancies, 1979-2006: 

[See PDF for Image] 

Source: GAO. 

[End of Figure] 

According to two of the three NCUA board members, communication among 
the board members is sometimes complicated by the small size of the 
board and Government in the Sunshine Act disclosure provisions that 
require that a meeting involving deliberation regarding official agency 
business be made public if it is attended by a majority of board 
members (for NCUA, two members). Because any discussion among NCUA 
board members would involve a minimum of two people, members are not 
allowed to discuss and deliberate official agency business outside of 
monthly board meetings unless they release a transcript of the 
discussion. To comply with such rigorous disclosure requirements, NCUA 
board members instead communicate with each other through their senior 
policy advisors, which one board member mentioned was "particularly 
challenging." One board member noted that the three-member board 
structure makes it easier to schedule meetings. However, with five or 
more members, a board gains the ability to create subcommittees and 
distribute tasks among these subcommittees and, for agencies covered by 
the Government in the Sunshine Act, allows for flexibility in 
communicating among members. Officials at FDIC and the Federal Reserve 
noted that their boards have subcommittees that work independently and 
report to the full board. Of the six other federal financial regulatory 
agencies we reviewed, only FCA has fewer than five members. 

Although FDIC had a three-member board in 1979, Congress expanded it to 
five members in 1989 in response to the increased responsibilities FDIC 
assumed from absorbing the Federal Savings and Loan Insurance 
Corporation. NCUA also has had an increase in responsibility, 
particularly in the last decade. Over this time, the credit union 
industry has changed substantially, and credit unions now compete more 
directly with similarly sized banks and thrifts. For example, recent 
charter conversions have greatly increased the number of federal credit 
unions that have geographic-based fields of membership (community 
charter credit unions). The movement away from the more traditional 
occupation-or employer-based fields of membership (single-and multiple-
bond credit unions) has resulted in credit unions being in more direct 
competition with banks for members in those geographic areas included 
in the credit union's field of membership. Additionally, the overall 
number of federally chartered credit unions has declined, but larger 
credit unions, in terms of total assets, have emerged. The larger 
credit unions offer products traditionally associated with banks and 
thrifts such as real estate and business loans, which has further 
blurred the distinctions between credit unions and banks. 

In 1991, we recommended that NCUA's board size be increased, in part to 
bring to the board a broader perspective on financial market regulatory 
and insurance issues.[Footnote 14] We made this recommendation to 
reflect changes in credit union activities, such as the introduction of 
real estate lending and the increase in membership and assets held at 
credit unions.[Footnote 15] In its comments on our 1991 report, NCUA 
disagreed with our recommendation, stating that it would be difficult 
to hold board meetings with all members present and that frequent 
vacancies among the appointed membership would mean the agency could 
face disproportionate influence from the ex officio members. 

NCUA's Use of Schedule C Appointees Was Similar to That of the Other 
Federal Financial Regulators: 

The use of Schedule C appointees at NCUA generally was similar to that 
of the other federal regulators that we reviewed that had Schedule C 
appointees.[Footnote 16] NCUA's Schedule C appointees are subject to 
the previously mentioned OGE ethics and conflict of interest 
regulations that focus primarily on ethics and independence matters. Of 
NCUA's seven Schedule C appointees, four had been previously affiliated 
with one specific credit union trade group. NCUA officials noted that 
the industry knowledge that the Schedule C appointees gained from their 
trade group experiences have been beneficial to board members. 

Schedule C appointments generally are made without regard to the rules 
for competition that govern career appointments. Schedule C appointees 
receive noncompetitive appointments to positions graded GS-15 and below 
that involve determining policy or other key close, confidential 
relationship with the agency head or other key appointed officials of 
the agency. Agency heads or key appointed officials may dismiss 
Schedule C appointees at any time, and such appointees generally leave 
their positions at the end of an administration. The Office of 
Personnel Management (OPM) reviews and authorizes agency applications 
for use of Schedule C positions. However, OPM does not review the 
qualifications of a Schedule C appointee, and final authority rests 
with the appointing officials. 

Similar to board or commission members at four of the other five 
regulators with Schedule C positions, NCUA board members have the 
authority to select Schedule C personal staff, while the chair has 
additional authority to select individuals for positions allocated to 
staff offices. NCUA and three agencies allot Schedule C positions to 
head similar staff offices. For example, NCUA, CFTC, FCA and FDIC each 
have a Schedule C appointee as the director of their respective public 
or external affairs offices. Table 3 presents information on the 
Schedule C positions at the financial regulators. 

Table 3: Allotment of Schedule C Appointees at Financial Regulators, as 
of September 15, 2006: 

Financial regulatory agency (total agency employees)[A]: NCUA (958); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Chief of staff to the chair; 
* Staff assistant to the board members (2); 
* Senior policy advisor to the board members (2); 
Positions allocated to program offices: 
* Director, Office of Public and Congressional Affairs; 
* Associate Director of External Affairs; 
Total[B]: 7[C]. 

Financial regulatory agency (total agency employees)[A]: CFTC (485); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Chief of staff; 
* Administrative assistant to chief of staff; 
* Administrative assistant to the commissioner (2); 
* Special assistant to the commissioner (2); 
* Attorney advisor; 
Positions allocated to program offices: 
* Chief Economist; 
* Director, Office of External Affairs; 
* General Counsel; 
Total[B]: 10. 

Financial regulatory agency (total agency employees)[A]: FCA (254); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Chief of staff; 
* Executive assistant to board member (2); 
Positions allocated to program offices: 
* Director, Office of Congressional and Public Affairs; 
Total[B]: 4. 

Financial regulatory agency (total agency employees)[A]: FDIC (4514); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Chief of staff; 
Positions allocated to program offices: 
* Director, Office of Public Affairs and Deputy Chief of Staff; 
Total[B]: 2. 

Financial regulatory agency (total agency employees)[A]: FHFB (147); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Staff assistant to chair; 
* Counsel to chair; 
* Special assistant to board member (2); 
Positions allocated to program offices: N/A; 
Total[B]: 4. 

Financial regulatory agency (total agency employees)[A]: Federal 
Reserve (1,858); 
Positions allocated to the chair and board (number of appointments if 
greater than one): N/A[D]; 
Positions allocated to program offices: N/A; 
Total[B]: N/A. 

Financial regulatory agency (total agency employees)[A]: SEC (3,865); 
Positions allocated to the chair and board (number of appointments if 
greater than one): 
* Chief of staff; 
* Senior advisor to the chair; 
* Confidential assistant to the chair; 
* Confidential assistant to the commissioners (4); 
Positions allocated to program offices: 
* Speechwriter; 
* Director, Legislative Affairs; 
* Legislative affairs specialist (2); 
* Investor advocate; 
* Confidential assistants to the division directors (4); 
Total[B]: 16. 

Source: GAO. 

[A] Figures refer to either total staff members, full time equivalents, 
or average number of personnel. Employee figures are from most recent 
information available at the time of our review. 

[B] Number reflects positions filled at the time of our review. 

[C] OPM has authorized a total of nine NCUA Schedule C appointments. At 
the time of our review, the Public Affairs Specialist (Media Manager) 
position was not filled. Additionally, while the NCUA chairman is 
authorized a Schedule C staff assistant position, an NCUA career 
employee currently holds the position. 

[D] Not Applicable. The Federal Reserve did not have any Schedule C 
appointees. 

[End of table] 

According to NCUA officials, the decision to select Schedule C staff 
rests with the individual board member, subject to White House 
approval, and requires no input from NCUA career staff. Board members 
told us that Schedule C staff generally have been identified through 
personal or White House referrals. Board members supervise and evaluate 
Schedule C staff. In addition, all of the board members stressed the 
importance of having staff who would complement the board member's 
knowledge, skill, and abilities through knowledge of the credit union 
industry or politics. 

NCUA's Schedule C staff are subject to the OGE ethics rules. As 
mentioned previously, OGE's Standards of Ethical Conduct for Employees 
of the Executive Branch focuses primarily on ethics and conflict of 
interest rules and disclosure.[Footnote 17] Similar to board members, 
Schedule C staff complete financial disclosure reports, receive ethics 
training, and seek advice and guidance from NCUA's ethics officer on 
matters involving potential conflicts of interest. 

We reviewed the backgrounds of NCUA's seven Schedule C appointees and 
identified four Schedule C appointees who have been associated with the 
same credit union industry trade group. Of these four Schedule C 
appointees, two are Senior Policy Advisors, one is the Director of 
Public Affairs and Congressional Relations, and one is a staff 
assistant to a board member. NCUA officials told us that Schedule C 
appointees that have trade group experience are viewed as beneficial to 
board members in discharging their regulatory responsibilities. The 
officials explained that in particular, the senior policy advisors that 
have come from credit union industry trade groups have brought an in- 
depth understanding of credit union issues as well as industry 
contacts. A board member further added that it is difficult to attract 
and retain staff from outside of the Washington, D.C., area. We 
reviewed available Schedule C background information at four other 
agencies and found a few examples of trade group experience.[Footnote 
18] For instance, out of the four Schedule C appointees at FCA, two 
appointees had prior trade group experience but came from different 
trade groups. 

Conclusions: 

NCUA has a number of controls and procedures in place that address 
independence and objectivity of board members that are similar to those 
at the six other financial regulatory agencies we reviewed. Generally, 
the primary controls for addressing independence and objectivity at all 
of the agencies are based on the statutory criteria for individual 
qualifications and composition of the boards and commissions as well as 
rules promulgated by the Office of Government Ethics. For example, to 
address political independence of board members and commissioners, NCUA 
and the six other agencies have multimember boards or commissions and 
the board/commission members are subject to Senate confirmation and 
have fixed term limits. Additionally, NCUA and five of the other 
agencies have restrictions on the number of board or commission members 
that can be of the same political party. Moreover, NCUA's board and 
staff, like other federal employees, are required to adhere to the 
Office of Government Ethics' Standards of Ethical Conduct for Employees 
of the Executive Branch, which sets standards for maintaining 
impartiality as well as avoiding conflicts of interest. 

However, opportunities exist for NCUA and policy makers to address, at 
least in part, perception issues regarding its impartiality as a 
regulator. In particular, NCUA could consider adopting, with 
appropriate modifications, one or more of the additional practices 
identified by officials of five of the six other financial regulators 
that address regulatory independence and objectivity. For example, NCUA 
could adopt additional independence and objectivity guidance similar to 
FHFB's Standards of Conduct that required FHFB employees, including its 
board, to maintain an arm's length relationship with the regulated 
industry. Similarly, NCUA could consider including independence and 
objectivity as core values in the agency's strategic plan, similar to 
FHFB and the Federal Reserve. By adopting one or more of the practices 
that the other regulators use, NCUA would reinforce the message that 
independence and objectivity are enduring and achievable values and 
goals for all staff, whether they are board members, career staff, or 
Schedule C appointees. 

Finally, consistent with our 1991 report, we continue to believe that 
consideration should be given to exploring the potential benefits and 
costs associated with increasing the number of NCUA board members. We 
made this recommendation, in part, as a reflection of the increasing 
involvement of credit unions in activities traditionally associated 
with banks and thrifts. These changes are more evident today as credit 
unions have expanded their fields of membership and compete more 
directly with similarly sized banks and thrifts. Further, NCUA has 
sometimes experienced board vacancies, which resulted at times in a 
board of fewer than three active members, potentially offsetting the 
full benefits of a multimember board structure. Additionally, some NCUA 
board members have noted that the public meeting restrictions of the 
Government in Sunshine Act effectively at times constrain communication 
and collaboration between board members, since any meeting involving 
two of the board members to deliberate official agency business must be 
public. As we noted in 1991, a larger board would help provide a 
broader perspective on financial market regulatory and insurance 
issues. A larger board also could offer opportunities to enhance 
continuity of expertise and decision making on the board, improve 
communication between board members, and achieve greater parity with 
the other regulatory agencies. As part of these deliberations, it would 
be important to consider the potential costs of an expanded board, 
including the potential for greater difficulties in reaching consensus 
on issues or the board's ability to act expeditiously on matters 
needing its attention. 

Recommendations for Executive Action: 

To address perception issues regarding NCUA's independence from and 
objectivity about the industry being regulated, we recommend that the 
Chairman of NCUA consider adopting practices that other financial 
regulators use to enhance their independence and objectivity. These 
practices include drafting agency-specific rules to maintain an arm's 
length relationship with the regulated industry and including 
independence and objectivity as core values in the agency's strategic 
plan. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Chairman, NCUA, and the heads 
or designees of CFTC, FCA, FDIC, FHFB, the Federal Reserve, and SEC for 
their review and comment. NCUA provided written comments that are 
reprinted in enclosure 1. NCUA, FCA, FDIC, and the Federal Reserve 
provided technical comments that we incorporated into the report, as 
appropriate. 

In its response, NCUA stated it was not opposed to our recommendation 
to consider adopting agency-specific ethics guidance. NCUA further 
indicated that it will consider including the concepts of independence 
and objectivity as part of its values and mission in its future 
strategic plans and in its 2007 Annual Performance Budget. NCUA 
indicated that adopting agency-specific ethics standards may not in 
practice result in more rigorous standards than those imposed by the 
Office of Government Ethics rules. NCUA stated that the general OGE 
rules prohibiting participation in any matter that would have a direct 
and predictable effect on an employee's financial interest would 
prohibit the conduct proscribed by the agency-specific rules, and are 
sufficient to assure independence and objectivity of NCUA board members 
and staff. Our recommendation is not limited to adopting agency- 
specific ethics standards, and the report points out practices of the 
other regulators, such as adopting rules that require an arm's length 
relationship with the regulated industry that could enhance NCUA's 
controls for independence and objectivity and help address perception 
issues associated with its impartiality as a regulator. 

NCUA also stated in its comment letter that our characterization of the 
Government in the Sunshine Act as prohibiting any discussions between 
two NCUA board members unless a transcript is produced and released was 
not accurate. We changed the report text to clarify that because of the 
current size of the board, the Government in the Sunshine Act 
effectively prohibits deliberations of official agency business between 
any of the NCUA board members outside of board meetings unless they 
release a transcript of the discussion in accordance with the act's 
open meeting procedures. 

NCUA also stated that it did not agree that Congress should increase 
the size of the NCUA board. NCUA stated in its view the costs and 
anticipated reduced efficiencies involved would outweigh any potential 
benefits, estimating the cost of additional board members and their 
staff to be at least $1.1 million annually. NCUA also stated that the 
increasing size and complexity of the credit union industry was being 
addressed through its focus on maintaining an adequate expert field 
staff, and that the three-member board was more than adequate to 
perform the board's role in establishing safety and soundness 
regulations and policy. While we acknowledge there would be some 
financial and potential efficiency costs associated with increasing the 
board size at NCUA, we continue to believe it would be worthwhile to 
review the potential benefits an expanded board may provide. We note 
that other financial regulatory agencies with broadly similar duties 
have operated for many years with boards having five or more members. 
As we noted in our report, vacancies on NCUA's board have sometimes 
been lengthy, leading the board to operate with two or fewer members, 
potentially offsetting the benefits of its multimember board structure, 
such as diversity of perspectives, experience, and political party 
representation among board members. Additionally, the benefits of a 
larger board could include, among other things, enhanced continuity of 
expertise and decision making on the board, improved communication 
among board members, and greater parity with the other regulatory 
agencies. We agree that maintaining an adequate field staff is 
essential to protecting the safety and soundness of the credit union 
industry, but believe that it is the responsibility of a balanced board 
to bring a diversity of perspectives and experience to board 
deliberations and to provide a broader perspective on financial market 
regulatory and insurance issues. Although Congress did not adopt our 
1991 recommendation to expand NCUA's board, we believe that, consistent 
with the literature on corporate governance practices, the size of the 
board should be periodically reviewed to ensure that the agency has the 
most appropriate board size for its current resources and 
responsibilities. 

As we agreed with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days from the date of this letter. At that time, we will send 
copies of the report to the Ranking Member, House Committee on Ways and 
Means; other interested congressional committees and subcommittees; the 
Chairman, NCUA; and the Chairmen of CFTC, FCA, FDIC, FHFB, the Federal 
Reserve, and SEC. We will make copies available to others upon request. 
In addition, the report will be available at no charge on the GAO Web 
site at [Hyperlink, http://www.gao.gov]. 

If you have any questions concerning this report, please contact me at 
(202) 512-8678. Contact points for our Office of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Key contributors to this assignment were Harry Medina, 
Assistant Director; Janet Fong; Danielle Novak; Barbara Roesmann; and 
Paul G. Thompson. 

Sincerely yours, 

Signed by: 

Yvonne D. Jones: 
Director, Financial Markets and Community Investment: 

[End of Section] 

Enclosure I: Comments from the National Credit Union Administration: 

National Credit Union Administration: 

November 15, 2006: 

Ms. Yvonne D. Jones: 
Director, Financial Markets And Community Investments: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Ms. Jones: 

Thank you for giving NCUA the opportunity to comment on your 
conclusions and recommendations set forth in NCUA's Corporate 
Governance Report (Report). We appreciate your detailed analysis of the 
issues. Our comments primarily address your suggestion that continued 
consideration be given to increasing the size of the NCUA Board and 
your observation that NCUA has not adopted ethics guidelines specific 
to our agency. We do not agree that Congress should increase the size 
of the NCUA Board. The three-member NCUA Board has a strong historical 
record as an independent and objective regulator, and the costs of 
increasing the size of the NCUA Board would far outweigh any possible 
benefits. We are not opposed to adopting NCUA-specific ethics 
guidelines, although in our experience adherence to Office of 
Government Ethics (OGE) rules more than adequately prevents conflicts 
of interest between NCUA officials and regulated credit unions. 
Similarly, we are not opposed to explicitly listing independence and 
objectivity as part of our values and mission in future versions of our 
strategic plan and have included these concepts in the 2007 Annual 
Performance Budget, which we anticipate the NCUA Board will soon 
consider. 

Further comments on each issue are below, followed by some technical 
notes. 

Increasing the Size of the NCUA Board is Unwarranted: 

Your Report recommends continued consideration, consistent with a 1991 
GAO report, of amending the Federal Credit Union Act (FCU Act) to 
increase the size of the NCUA Board to five members. You also state 
that in deliberating this issue, Congress should analyze the potential 
costs and benefits associated with a larger Board. In our view, the 
costs and reduced efficiencies outweigh any potential benefits. 

NCUA estimates the cost of salaries, benefits, and other expenses for 
two additional Board members and their staffs would be at least $1 .1 
million annually. In addition, NCUA would incur significant other one- 
time costs associated with increasing the number of Board members. The 
costs of this proposal, however, extend far beyond the tangible, 
measurable monetary impact. 

The greatest cost would be a reduction in efficiency. Your report 
acknowledges that expanding the size of the Board could make it more 
difficult to reach consensus or act quickly when necessary. We agree 
that increasing the size of the Board would make decision-making more 
difficult and increase the time required for Board actions. We also 
note that simply scheduling matters would become more complicated. The 
current, three-member Board structure, in contrast, affords more 
interaction between career staff and Board members than would be 
possible with a five-member Board. NCUA, like other federal agencies, 
is continually in search of ways to streamline its processes and reduce 
bureaucracy. The three-member Board provides for maximum efficiency 
while still allowing for a variety of viewpoints. Increasing the size 
of the Board would make agency processes more time-consuming and less 
efficient. 

We also doubt that increasing the size of the Board would address the 
concerns cited. You argue that one factor in favor of additional NCUA 
Board members is the increasing asset size and complexity of the credit 
union industry. While the credit union industry has grown in size and 
complexity, this challenge is best addressed by having adequate numbers 
of expert field staff. That is why, despite a continuing decrease in 
the number of insured credit unions, NCUA did not reduce field staffing 
in 2006 and does not anticipate a reduction in field staffing for 2007. 
Examiners, supervisory examiners and regional office staff are the 
first-line overseers of safety and soundness. The Board's role of 
establishing safety and soundness regulations and policy is more than 
adequately performed by a three member Board. We believe the 
significant cost of additional Board members would have little impact 
on NCUA's mission to protect the safety and soundness of the credit 
union industry. 

You cite the Government in the Sunshine Act as another reason for 
increasing the size of the Board, suggesting at page 14 of the Report 
that the Sunshine Act prohibits any discussions between two Board 
members unless a transcript is produced and released because any such 
discussions would constitute a meeting under the Sunshine Act. Neither 
the Sunshine Act nor NCUA's rules, however, impose such a restriction. 
The Sunshine Act defines meeting as "the deliberations of at least the 
number of individual agency members required to take action on behalf 
of the agency where such deliberations determine or result in the joint 
conduct or disposition of agency business." 5 U.S.C. 552b(a)(2). 
Informal, tentative, or background discussions that "clarify issues and 
expose varying views" are not deemed to be meetings under the Sunshine 
Act. S. Rep. No. 94-354 (1975), p. 19, cited in An Interpretive Guide 
to the Government in the Sunshine Act (2ND ed. 2005). Consistent with 
the Sunshine Act and its legislative history, NCUA's Sunshine Act 
regulation defines meeting as any deliberations by two or more Board 
members that determine or result in the joint conduct or disposition of 
official agency business. 12 C.F.R. 791.10(d). Thus, while members 
must take care not to engage in discussions that effectively determine 
official actions, it is not accurate to say that the Sunshine Act 
prohibits all discussion between two Board members unless conducted 
according to open meeting procedures. 

Finally, we observe that although Congress considered issues related to 
the structure of NCUA's Board more recently than 1978, and after GAO's 
initial recommendation to increase the size of the Board, Congress did 
not adopt GAO's suggestion. In 1998, as part of the Credit Union 
Membership Access Act, Congress added the restriction that no more than 
one NCUA Board member can have recent experience as a credit union 
officer. P.L. 105-219, 204(1), codified at 12 U.S.C. 1752a(b)(2)(B). 

Adoption of NCUA-Specific Ethics Standards and Inclusion of 
Independence and Objectivity as Part of the NCUA's Strategic Plan May 
be Duplicative: 

Your Report notes that NCUA has not adopted agency-specific ethics 
guidelines and recommends that we do so. We would not oppose adopting 
such standards, but we do not think this action would, in practice, 
result in more rigorous standards than those imposed by Office of 
Government Ethics Rules. 

The six other agencies you surveyed also reported that the OGE 
disclosure requirement as their "primary tool" for guarding against 
conflicts of interest. You also state that the agencies with agency- 
specific rules based their rules on the OGE rules. We believe that the 
general OGE rules prohibiting participation in any matter that would 
have a direct and predictable effect on an employee's financial 
interest would prohibit the conduct proscribed by the agency-specific 
rules, and is sufficient to assure independence and objectivity of NCUA 
Board members and staff. Our required, annual ethics training for all 
staff, including Board members and Schedule C appointees, provides 
further information about how this requirement applies in the context 
of the credit union industry, and to date we have not seen the need to 
adopt separate NCUA rules restating the OGE requirements. We are, 
however, open to adopting an NCUA version of the OGE rules, 
particularly if there are suggestions for provisions not covered by the 
OGE rules that should apply to NCUA Board members and staff. 

We must clarify that the specific regulations imposing limitations on 
holding assets specific to regulated industries that some agencies have 
adopted are not directly applicable in the credit union context, since 
credit unions do not issue stock. NCUA does track information on credit 
union membership for Board members to ensure conflicts do not arise 
when matters concerning individual credit unions come before the Board. 
NCUA's Ethics Officer requires each Board member to list the credit 
unions where they maintain affiliation annually. The list is circulated 
to the NCUA Board Secretary as well as other officials to guard against 
any possible conflicts. This annual listing is not included in any NCUA-
specific regulation or guidelines, but nothing would prevent us from 
making it a formal guideline, and we will consider doing so. 

While NCUA's role as a regulator clearly requires it to be independent 
and objective, we have never explicitly used these terms in our 
strategic plan. We agree that independence and objectivity are crucial 
parts of our stated mission of fostering the safety and soundness of 
insured credit unions and our first stated value, integrity. NCUA 
Strategic Plan 2003-2008, p. 7. We also agree with your observation 
that our Board members understand their duty to be objective. We have 
no objection to explicitly articulating the concepts of independence 
and objectivity in future versions of the plan. 

Technical Issues: 

In the first paragraph of the "Background" section on page 5, you 
state, "NCUA requires its credit unions to obtain federal share 
(deposit) insurance from the National Credit Union Share Insurance 
Fund." The requirement that federally chartered credit unions obtain 
share insurance is a requirement imposed by the FCU Act, not NCUA. 
Accordingly, we believe this sentence should read, "The Federal Credit 
Union Act requires federal credit unions to obtain federal share 
(deposit) insurance from the National Credit Union Share Insurance 
Fund." 

Finally, we think your discussion of how agency enabling legislation 
facilitates Board member independence on pages 6 to 8 should place 
greater emphasis on the provision, unique to the FCU Act, which permits 
only one Board member with recent credit union experience. You mention 
this provision in the text, but then fail to list that control in Table 
1 with the other statutory controls designed to ensure independence and 
objectivity. The FCUA Act imposes a more stringent requirement than the 
other enabling statutes, and we believe Table 1 would be more accurate 
if you added a row listing this requirement. Although Table 2 includes 
this restriction in the list of FCU provisions, a reader must parse 
through the entire chart to determine whether or not other agencies you 
studied are subject to a similar restriction. We think it is somewhat 
inconsistent to highlight what may be perceived as shortcomings of the 
FCU Act, such as the fact that unlike the Federal Deposit Insurance 
Act, the FCU Act does not require one Board member to have state 
supervisory experience, without placing equal emphasis on a provision 
of the FCU Act with no parallel in other enabling statutes. 

Thank you again for this opportunity to comment, and please feel free 
to call me if I can be of further assistance in preparing your final 
report. 

Sincerely, 

Signed by: 

J. Leonard Skiles: 
Executive Director: 

[End of Section] 

(250302): 

FOOTNOTES 

[1] See GAO, Credit Unions: Greater Transparency Needed on Who Credit 
Unions Serve and on Senior Executive Compensation Arrangements, GAO-07- 
29 (Washington, D.C.: Nov. 30, 2006). 

[2] Schedule C appointees, frequently called political appointees, 
generally are noncompetitive and noncareer; that is, they are appointed 
without regard to the rules for competition that govern career 
appointees. Schedule C appointments are not subject to Senate 
confirmation. 

[3] Executive branch employees are subject to OGE's Standards of 
Ethical Conduct for Employees of the Executive Branch. The Standards 
includes rules governing gifts from outside sources, gifts between 
employees, conflicting financial interests, impartiality in performing 
official duties, seeking other employment, misuse of position, and 
outside activities. See 5 C.F.R. Part 2635 (2006). 

[4] The Federal Reserve Act does not contain a restriction on party 
affiliations of the Board of Governors. 12 U.S.C.  241. 

[5] The Government in the Sunshine Act, 5 U.S.C. 552b, declares that 
the public is entitled to the fullest practicable information on the 
decision making processes of the federal government. The act applies to 
agencies headed by a collegial body of two or more individual members 
appointed by the President and confirmed by the Senate. Accordingly, 
the act requires those agencies to open their meetings to public 
observation, except in instances where the agencies find that 
disclosure of information discussed at the meetings could be 
detrimental to the public interest. Agencies must maintain a complete 
transcript, electronic recording, or minutes (as specified in the act) 
of meetings closed to the public, in accordance with the act. These 
records are publicly available, unless the agency determines under 
exemptions provided in the act that the information should not be 
disclosed. 

[6] GAO, Credit Unions: Reforms for Ensuring Future Soundness, GAO/GGD- 
91-85 (Washington, D.C.: Jul. 10, 1991), 197. 

[7] According to NCUA's Web site, there are currently fewer than 500 
non-federally insured state-chartered credit unions. Non-federally 
insured credit unions are not subject to NCUA regulation. 

[8] Pub. L. No. 95-630 (Nov. 10, 1978). 

[9] In support of this statement, NCUA representatives referred to a 
report by the Senate Committee on Banking, Housing and Urban Affairs 
issued in connection with a bill from the previous Congress that 
contained language replacing an administrator with a board. See S. Rep. 
No. 94-751. 

[10] See 5 U.S.C. Appendix - Ethics  101. 

[11] FHLBanks are the 12 Federal Home Loan Banks that, along with the 
Office of Finance, constitute the Federal Home Loan Bank System. 

[12] Warrick Smith, "Utility Regulators - The Independence Debate," The 
World Bank Group, Public Policy for the Private Sector, Note no. 127 
(October 1997). Marc Quintyn and Michael W. Taylor, "Regulatory and 
Supervisory Independence and Financial Stability," CESifo Economics 
Studies, 49 (February 2003). Federal Communication Commission, 
Connecting the Globe: A Regulator's Guide to Building a Global 
Information Community (Washington, D.C.: June 1999). 

[13] Holly J. Gregory, Comparison of Corporate Governance Guidelines 
and Codes of Best Practice (New York: Weil, Gotshal & Manges, LLP: 
January 2006). 

[14] GAO/GGD-91-85, 197. 

[15] NCUA's oversight responsibilities, in terms of total credit union 
assets and insured share deposits, have continued to increase 
substantially. As of December 2005, federally insured credit unions 
held $678.7 billion in assets and had $515.6 billion in insured share 
deposits compared to $195.3 billion in assets and $178 billion in 
insured share deposits in June 1990. 

[16] The Federal Reserve did not have Schedule C positions. 

[17] OGE's Standards of Ethical Conduct for Employees of the Executive 
Branch contains provisions addressing impartiality in performing 
official duties. Under 5 C.F.R.  2635.502, unless they receive prior 
authorization, employees should not participate in a particular matter 
involving specific parties that they know is likely to affect the 
financial interests of a member of their household, or in which they 
know a person with whom they have a covered relationship is or 
represents a party, if they determine that a reasonable person with 
knowledge of the relevant facts would question their impartiality in 
the matter. Under 5 C.F.R.  2635.503, employees who have received an 
extraordinary severance or other payment from a former employer prior 
to entering government service are subject, in the absence of a waiver, 
to a 2-year period of disqualification from participation in particular 
matters in which that former employer is or represents a party. 

[18] Of the six other agencies we reviewed, four provided information 
on the professional backgrounds of their Schedule C appointees, one did 
not provide information, and one did not have any Schedule C appointees.

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