WASHINGTON-CEOs polled by Credit Union Journal have primarily expressed support but also some mild irritation with NCUA's plan to dial back its regulatory flexibility (Reg Flex) program.
"The changes NCUA are proposing seem prudent to me," said Evan Clark, CEO of the $225-million Department of Commerce FCU. "Particularly in the economic environment. Our peer credit unions had an ROA of minus two basis points for all of 2009. Bottom-line pressures will continue to mount as loan losses increase, and over the next few years we will have to contribute more to the NCUSIF. Whether you run a strong credit union or a weak credit union, closer regulatory scrutiny is one of the results of the poor performance of credit unions and the weak economic environment."
But not all agree. In Huntsville, Ala., Greg Olmsted, CEO of the $74-million North Alabama Educators CU, said, "I actually prefer the current exam process, which is more focused on balance-sheet risk areas and compliance. It seems like examiner time is being better utilized now than in the past."
DCFCU's Clark said the changes NCUA is proposing are in line with efforts at his credit union. Clark said the credit union performs extensive testing of its investment portfolio on a monthly basis to manage interest rate risk. He also noted that DCFCU has not been impacted by Reg Flex because the CU does not do member business loans and keeps fixed assets as low as possible. "There's a reason fixed assets are called non-earning assets," added Clark.
DCFCU has never had issues with examiners and Clark does not expect any due to the CU's robust ALM process and active ALCO. "We never try to hide anything from the examiners, we show them the good, the bad, and the ugly," Clark said. "We keep our board and our staff completely in the loop and document all the disclosures to the board. If you come from a position of strength, the examiners won't bother you."
NCUA Should Focus on CUs Posing Greatest Risk
HUNTSVILLE, Ala.-Greg Olmsted, president of the $73-million North Alabama Educators Credit Union, contends NCUA should concentrate on CUs posing the greatest amount of risk to the insurance fund. "There are sections on the Call Report that disclose new products and services being offered," he reminded. "The NCUA should monitor the performance of a credit union and look for potential risk flags in new services being implemented."
Reg Flex has been working, he said. "It never made much sense to spend the same amount of time on all credit unions when the financial numbers are readily available to the NCUA."
Despite no major field of membership changes on the horizon at the $73-million North Alabama Educators Credit Union, President Greg Olmsted is not a fan of having to come up with a business plan to expand FOM when the CU is in good shape. "This seems unnecessary unless the credit union has low net worth," Olmstead explained. "But the concern over asset growth due to an FOM change and its negative effect on net worth could be a valid issue."
Increased Burden = Decreased Business
ARVADA, Colo.-Taking a neutral stance on Reg Flex, Sundie Seefried, CEO of the $211-million Eagle Legacy CU, noted that having to deal with increased regulation detracts from business. "Certainly, the less we endure from a regulatory perspective, the more time we can spend on our mission," she said. "State-chartered credit unions are now seeing state and federal examiners. The major issue here is when direction is not the same or even contradictive."
Spirit of Reg Flex Still Has Validity, One Executive Says
WEST PALM BEACH, Fla.-One CEO, "wary" of the NCUA, chose to remain anonymous about his dissatisfaction with the national CU regulator and proposed changes to Reg Flex.
"I do agree we have a different climate than we did in 2002," said the CEO. "But the spirit of Reg Flex still has validity in my mind. Unfortunately its common for regulators to swing too far in an opposite direction. There are still many credit unions that are well managed and do not need to be painted with the same broad stroke as those that have failed to be good stewards." Reg Flex will continue to work, he insisted, saying an 18-to-24-month review cycle for well-managed CUs does not add undue risk to the NCUSIF. "With the advent of secure websites, why can't questions and answers be provided to the regulators on a remote basis?" If regulators visit more often, that will simply be redundant, according to the CEO, who pointed out his credit union has external third-party audits conducted monthly and annual non-qualified opinion audits. "If the regulators come in more frequently, all we will be doing is spending our time going over the same risk area data, wasting their time and ours."
Reining in Reg Flex Is a 'Smart Decision'
SAN ANTONIO, Texas-It's a "smart decision" to make changes to Reg Flex, according to the $5.5-billion Security Service FCU. SVP John Worthington summed up the CU's position saying, "Given the number of credit unions that have suffered problems with the economy, the decision to go back to a 12-month exam schedule makes sense. Just in the interest of safety and soundness." Worthington believes Reg Flex has worked, up until the time the "economy went south." As for changes to the community chartering rules, Worthington said, "we normally do a business plan any time we expand."
