A Checklist for the Agency
WEST PALM BEACH, Fla. — As part of an indepth report on NCUA and whether it is up to the task of regulating credit unions and corporates, Credit Union Journal asked for recommendations on where the agency could make improvements. On this page are what CEOs said in response.
Needed: Examiners Who Better Understand CUs' Business Plans
SAN BERNARDINO, Calif. — Gregg Stockdale cautioned that NCUA should avoid "regulating the peanuts" out of the industry after big trouble surfaces and should instead invest in examiner training to prevent problems.
"They need to pony up with people who can go into a credit union and really see what's going on," said the CEO of the $35-million 1st Valley CU. "They need examiners who can look at a business plan, understand it, and then make a decision on whether it is effective or not. They need people who can say it's not a good idea to do member business lending with an outfit five states away."
To Improve Exam Process, Better Focus On Internal Controls Needed
NORTH HIGHLANDS, Calif. — NCUA needs to develop a better exam process that is focused on the internal controls at the credit union and ensures risks are being managed.
Henry Wirz, CEO of the $1.7-billion SAFE CU, believes that is the best step for the agency, emphasizing that some risk must be allowed. "A lot of the bad things happening at credit unions is due to management not paying attention to managing risk. NCUA needs to look at how each credit union is managing risk in areas like business lending, mortgage lending, and indirect lending; in other words the kinds of controls and features the credit union has that will mitigate risk that comes with these types of loans."
Instead, NCUA is simply labeling those lending areas as risky, which is slowing down lending. "We have to change that," stated Wirz. "Otherwise everything we do will be considered risky and the solution will be to take zero risk to make it easy for regulators to regulate us. We won't have any more problems but we won't have any more credit unions. Today we face a risky lending environment. But if we are to get out of this economic crisis, someone needs to step forward and identify prudent loans and make them."
More Accountability Is Needed Among Agency's Senior Staff
ST. LOUIS — There has to be more accountability at NCUA-especially among senior staff, according to Hubert Hoosman.
"I think NCUA needs to seriously look at means of assessing, evaluating, and holding its senior executives accountable for their recommendations," said the CEO of the $640-million Vantage CU. "NCUA is not only responsible for managing credit union safety and soundness, but for building a growing and healthy industry. I think that piece has been forgotten by the executive level of their staff and has resulted in actions that have not been in the best interest of progressive growing credit unions."
Experience In Financial Institutions, Businesses Should Be Required
WEST PLAM BEACH, Fla. — Business training and more experience working in a financial institution is what will boost examiner expertise and help them work with CUs to avoid problems.
A source, requesting anonymity, told Credit Union Journal that much of the ills associated with poor exams that miss red flags are due to examiners who don't know what to look for and do not have a grasp on what it takes to run a credit union.
"You go to one of the major business schools in the country and they won't take you in their graduate program until you have three years' experience in a business," the source observed, saying that same type of thinking needs to be applied to hiring CU examiners. "So examiners should be required to have at least worked in a financial institution, hopefully at a senior level, and have a degree in business."
The examiner should be able to do more than look at balance sheet operations, according to the source. "They should be able to sit down with the CEO, senior executives, and the board to discuss the credit union's strategic plans and vision. They should be able to tell the credit union what its strengths and weaknesses are-in a sense they should be like a strategic planner."
To Boost Skills, Create New Group of Subject Matter Experts
WEST PLAM BEACH, Fla. — NCUA should increase the skill level of examiners and also create subject matter experts.
That is the opinion of one individual who asked for anonymity. Noting NCUA examiner skill "needs upgrading," the source stated that NCUA should move away from its habit of hiring more examiners and instead increase the skills of the team it has. One way to do that is to create more subject matter experts among the examiner crew. "For example, you set up a cadre of real estate experts in a region. So if an examiner goes in and finds real estate problems they call the regional office and say send me a couple real estate experts. You could have commercial real estate experts, investment experts, mutual fund experts, etc."
Rotation of examiners, especially those in-house at corporates, has to be instituted as well to avoid examiners becoming "part of the institution. Sometimes the problem at the corporates was the examiner did not know what he was doing. Sometimes it was because the examiner became too close to the credit union and part of the team."
Rolling Back Reg-Flex Unnecessary; Reallocating Resources Is Needed
GLENDALE, Calif. — Stuart Perlitsh believes NCUA can better regulate CUs by improving allocation of its examiner resources and not roll back Reg Flex.
The CEO of Glendale Area Schools FCU contends that NCUA spends too much time at healthy credit unions, which spreads examiners too thin, not allowing the team to spend more time at poor performers.
"NCUA needs to take the quarterly Call Report data we provide, analyze it from their building, and then aggressively send the boots to the credit unions that need help. Now they are sending the boots arbitrarily to every CU in the nation."
Performing credit unions with good, consistent performance bell curves should be given a "pass. For those credit unions NCUA identifies as performing well, have them submit their annual opinion audit so NCUA can do what I call a table desk audit rather than a field audit. This way they can free up a huge amount of examiner resources to focus on helping the sick institutions along."
Challenge Will Be In Keeping Up With A Moving Target
NEW YORK — Cliff Rosenthal says NCUA could improve examiner training, but it means keeping up with a moving target.
The president of the National Federation of Community Development Credit Unions told Credit Union Journal that NCUA has the tough task of keeping its examiner training on pace with the evolution of credit unions. "In that respect training is a moving target. The whole industry has gotten much more complex. You always somewhat lag behind the actual institution in developing regulations and I presume examining procedures as well. Those people who are in the credit union day-by-day know the operations better than any outsider."