ALEXANDRIA, Va. – A growing number of credit unions are questioning NCUA’s supervision of failed corporate credit unions and whether the credit union regulator is up to overseeing the corporates going forward under a new system.
“I believe that NCUA, regardless of what [NCUA Chairman] Debbie Matz has to say, is responsible for the problems in the corporate(s). I say this because they are the regulator, and safety and soundness is their concern,” Greg Storch, president of USE CU, in Tomball, Texas, wrote in a comment letter submitted on the corporate proposal.
“Prior to this proposed regulation, NCUA was inadequate in its duties as a regulator of the corporate system,” wrote Todd Erickson, president of Capital Educators FCU in Boise, Idaho, who also cited regulators at the FDIC, Securities and Exchange Commission and state agencies who he said were “derelict” in their duties.
“As the regulatory agency who was to ensure the safety and soundness of WesCorp, it appears someone neglected their duties,” wrote Donna Severs, president of Bakersfield City Employees FCU in Bakersfield, Calif. “My concern is that now you have decided it’s time to correct things to ensure it doesn’t happen again when I firmly believe that had NCUA been doing their job it would never have gotten to the point it finally did.”
Numerous commenters on the corporate proposals are blaming NCUA policies for the failures of U.S. Central FCU, WesCorp FCU and the troubles at several other corporates that are creating billions of dollars in losses for credit unions across the country. Among the policies cited are the encouragement for corporates to compete against each other encouraging credit unions to participate in numerous corporates, waivers of NCUA rules to allow a handful of corporates to engage in risky investments, and an easing on the limits on concentrations of investment concentrations and on capital restrictions.
Several small corporates recounted NCUA's policy in the 1990s to winnow down the number of corporates by encouraging larger corporates to compete against each other through national fields of membership. That meant that the larger corporates were constantly adopting greater risks to find higher yields in order to pay better dividend rates, they said.
Several commenters questioned whether NCUA is up to the task of managing the tens of billions of dollars in failed “legacy assets” held by the corporates as planned, and suggested another regulator, such as the Treasury Department, should be assigned the legacy assets. Others wondered whether a new corporate system should instead be supervised by a larger federal banking regulator, such as FDIC or the Office of the Comptroller of the Currency.
“The failures, near failures and pending failures all occurred under the watchful eye of the NCUA,” wrote Jim Harris, president of USE CU in San Diego.
Several commenters called for a formal investigation of the causes of the corporate meltdown and NCUA’s role overseeing the corporates. “We recommend that NCUA consider the Truth Commission in South Africa as a model,” said Henry Wirz, president of SAFE CU in Highland Park, Calif. “The object of the examination is not to place blame but rather bring transparency to the causes so that before we make new rules we determine what went wrong.”
“I feel that NCUA should revisit its controls and training of corporate examiners,” wrote Bruce Thomas, president of Calcasieu Teachers & Employees CU in Lake Charles, La., who added the problems with corporate examiners will continue “because you have the same examiners still doing the same job at the same corporate.”
Dennis Moriarity, president of Unity CU in Warren, Mich., said a review of NCUA’s role in the corporate meltdown is critical to rebuilding confidence in the system and in NCUA. “The only way to ensure that never happens again is to completely change NCUA while reforming the Corporate system,” he wrote.
NCUA said it has no plans for an investigation into the causes of the corporate meltdown or the agency’s role in it. However, the Office of the Inspector General of NCUA will conduct a loss mitigation audit of U.S. Central and WesCorp.
“NCUA, the Corporates, and the Natural Person Credit Unions all are equally responsible toward protecting our members money, which lately we’ve done a very poor job of, notwithstanding the economic downturn and mortgage meltdown,” wrote Nick Meyer, president of Minnesota Valley FCU in Mankato, Minn. “We blew a lot of it. Lucky they don’t fully understand how much or how badly. If they did, they’d fire us all.”
