LAS VEGAS-If small credit unions did not have the same regulations imposed on them as large credit unions and banks, they would have a better chance to survive.
That is the opinion of John Drake, CEO/manager of $20.3-million S.W.G. FCU here. Drake knows a little something about regulation; he was an NCUA examiner in California in the early 1990s and recalls many of the credit unions in his district were small in assets.
Today, he notes sadly, nearly all of those small CUs are closed or merged out.
"Government is so invasive in private life, and especially at small credit unions," he declared. "Small credit unions do not have the resources to hire a compliance officer or upgrade the computer system to have it keep track of all the compliance requirements," he noted.
And if a small credit union gets taken over by the NCUA "it is not a big hit" to the insurance fund, Drake asserted. Drake believes that for the last 20 years, NCUA "has been treating small credit unions like large ones."
The result: the total number of credit unions has been driven down, which Drake argued is bad for both consumers and for vendors.
"It would be in the best interest of all parties to keep small credit unions in existence," he said. "Look at the airline industry and how mergers have led to a shrinkage of the market and fewer choices."
In the Las Vegas market, which already is dealing with high unemployment and record foreclosures, Drake said recent moves by the government "have made is difficult for us to stay in business."
"Credit unions big and small are having trouble lending out money," he said. "Everybody is very liquid but there is no demand for loans and investment yields are at historical lows. Plus we are limited in the types of investments we can make. We are getting squeezed pretty hard on the investment front, and if things keep going this way credit unions and banks will have trouble surviving. The only way to get revenue is through fees, but fees alone will not keep a credit union operating, it needs loans."
No New Deposits
Drake describes S.W.G. FCU as a "throwback," in that it only serves Southwest Gas Corp. employees, retirees and their families. He said the board has had "some talks" about adding SEGs but has opted to remain a single-sponsor credit union. "Our sponsor is not expanding, it is laying off people,. We have too much liquidity right now so we don't want to take on any more deposits. As a deterrent we are not issuing any more share certificates," Drake noted.
"The more deposits we have on hand the more reserves we have to have with NCUA, which costs money. In Las Vegas, nearly every credit union has shrunk its asset size 20% or so in the past two years. We are pretty aggressively trying to keep growth down. With no loan demand there is no reason to have deposits because they will cause the net worth ratio to shrink."
In June 2011 SWGFCJ posted a net loss of $10,317 prior to assessments. Its net worth ratio was 9.94% For 2010 it had a net loss of $142,500 excluding assessments. It paid $22,052 to the NCUSIF and $24,513 to the corporate stabilization fund, leaving it with a net loss of $189,065
According to Drake, if Congress wants to keep jobs and keep financial institutions alive it should roll back regulations to where there were a few years ago.
"The relationship between the regulator and credit unions has become combative instead of helpful," he said. "It is troublesome, especially the way NCUA gave its examiners raises while credit unions were having to lay off staff. There is a bad feeling in everybody's mouth, and that is why the attempt to recapitalize the former WesCorp found no takers."
Knee-Jerk Reaction
Drake said the new capital structure the corporates have to meet and the range of services they can offer is much different, meaning corporates have "more chance of failing today than it did in 2008 and there is no insurance on the deposits." The "knee-jerk reaction" of taking away the investment arm of the corporates is "wrong," Drake continued, arguing that if many corporates tightly manage their risk they are likely to survive.
"Small and big credit unions alike are having to figure out where to do fulfillment services and investments," he said. "NCUA's role could be helpful if it offered insurance. NCUA, Congress and the administration could help build a helpful financial institution system, but I don't see it. No one on the government side really cares. It almost seems like the government is trying to set up a socialistic arrangement to replace capitalism. The government will control the banks and no one is championing the cause."
Although NCUA created an Office of Small Credit Unions last year, Drake dismissed it as "smoke and mirrors." He said his small CU is governed by the same regulations as Bank of America, "which is insane."
"I have a closed field of membership, so why are examiners pushing BSA on me," he asked. "What are the chances I have a terror cell in my membership? But when I ask the examiners about it they tell me they are just doing their job and I don't understand."
CUs As The Next S&Ls?
During S.W.G. FCU's most recent examination, a Bank Secrecy Act audit was performed. Drake said the examiners looked at six months of numbers to determine there were any risks or violations. At the end Drake was told the credit union should have issued a Suspicious Activity Report on one member who fit the profile of a potential money launderer-but it was the treasurer on the board of directors making the deposits.
"The examiners are looking for Osama bin Laden and his cronies in my field of membership, which is a waste of resources," he said. "They are not helping us, they are hurting us...in a lot of ways. I hope the elections in 2012 bring a new way of treating the financial realm. I hope the credit union industry doesn't go away like the savings and loan industry did in the 1980s."
