* Navy FCU is not specifically looking at community bank targets but would not rule out buying one

* Ambiguity is the biggest challenge with regulation today

* The tax exemption is a privilege that credit unions must continue to earn

With $84 billion in assets and more than 7 million members, Navy FCU is the largest credit union in the world. The organization is led by President and CEO Cutler Dawson, who was born in Richmond and served in the Navy for 34 years before taking the helm at the credit union 13 years ago.

S&P Global recently sat down with Dawson at Navy FCU's Vienna, Va., headquarters to discuss credit union mergers, the NCUA's plans to close the corporate credit union stabilization fund and the credit union tax exemption.

The following is an edited transcript of the interview.

S&P Global Market Intelligence: What are your thoughts on the National Credit Union Administration's proposed plan to close the corporate credit union stabilization fund?

Cutler Dawson: We contributed about $200 million to the stabilization fund, and our estimate of what would be returned to us is about $70 million. My view has been, and I told this to the NCUA last year, is that it would be a great demonstration to credit unions to return whatever they could sooner rather than later even if they had to take a little bit of risk because it wasn't completely unwound yet. Start unwinding it and return what you can. I'm not saying rush into it and leave money on the table but return what you can as soon as you can. They'll sort it out in the right way in the end. We're going to make our comments to them next week.

What did Navy FCU learn by going through the consent order process with the Consumer Financial Protection Bureau that you apply today?

A couple things. One, the CFPB and its views have evolved over time. They had some time to ramp up and get going, and in perfect hindsight we probably didn't ramp up as fast as they did. But, at the same time, there was really not clarity on where they were going and what they wanted. I'm still not sure there is. We probably should have ramped up quicker. But I don't think anybody did. I'm not beating myself up over it. We have had five supervisor exams by the CFPB since 2012, and in a span of the last two years we've had four. They generally entail eight to 10 examiners on site for about five months. And we came out of those in terrific shape by their estimation.

Speaking of regulation, what is your greatest concern at this point?

I would say uncertainty and ambiguity. Meaning when two people can look at one thing and come up with two different conclusions. The banks and the credit unions being one entity and the regulators being the other. It makes things challenging.

Navy has $84 billion in assets and offers most of the products and services that the nation's largest banks do. How do you defend the credit union tax exemption?

I got that question at a Congressional hearing in 2005. My answer at that time was the same as it is today. The credit union tax exemption is a privilege. And we have to prove that we deserve and live up to that privilege. And we do that in a number of ways. Our savings rates are generally pretty good. Our loan rates are good. And one of the consequences of that is the whole marketplace has to watch what we're doing. Whereas some people might have an appetite to drive savings rates down and loan rates up, they look at what we're doing and they say "oh, I can't really do that." So that's a service that we provide. And in return, we have to make credit available to people and we have to give them a safe platform to save their money.

Do you fear that there could come a day where you could lose the exemption?

I always think about it but I can't tell you I worry about it. I think we have a very strong case to maintain it. It's always possible. If it happened, it would come in a day when the nation was so desperate for revenue that lots of exemptions would go away. Like mortgage-deduction exemptions or charitable contribution deductions. And these things are near and dear to people's hearts. I'm not sure we're ready to do that and take those steps yet.

On mergers, have you noticed any change in the kinds or sizes of credit unions that are looking to partner with Navy FCU?

This is my 13th year here and I'd say it's about the same today as it's always been. What has changed, though, is that the number of credit unions in the country continues to get smaller. It's more and more of a struggle for the smaller folks to stay relevant. So that creates more mergers. The complexity of the regulatory environment – especially post crisis – makes it even harder to keep up and survive. But we believe that you have to grow your membership to be viable into the future. If you're not moving forward you're not going to last very long. Our primary desire is to do that through organic growth. The primary thing we look at with merger opportunities is does that credit union have a presence on a U.S. military base. You are only permitted one credit union per base per Department of Defense rules.

We've seen a growing number of transactions involving credit unions buying banks. Can you envision a scenario where Navy FCU would buy a community bank?

I guess, but we're not out there actively looking. Again, we have plenty of work to do with our organic growth. We have bought bank branches but not whole banks. I'd never say never to anything.

Some banks see these deals as another step in credit unions becoming more bank-like. What's your take?

If you feel disadvantaged by credit unions, become one. I'll help you convert.