Regulators, Examiners Could Help, But Don't, Say Duo
NEW YORK-The survival of many small credit unions may rest on examiners paying greater attention to supervisory letters and NCUA instituting a "moratorium" on forced mergers.
Those opinions, respectively, were shared by Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions, and Helen Godfrey-Smith, CEO of the $90-million Shreveport FCU in Shreveport, La.
Rosenthal emphasized that examiners must pay attention to the supervisory letter NCUA sent to examiners early in the year indicating that field staff should consider the special challenges small credit unions face.
"We were hopeful that the letter to examiners would have a beneficial effect on examination practices, that examiners would take that seriously and make the appropriate allowances," Rosenthal told Credit Union Journal. "We think the level of awareness of and implementation of that letter's direction may be at best 50-50. We think it was a good effort on the part of the NCUA board to build in some framework of flexibility for small credit unions, but so far we feel it is falling short of having the desired effect."
According to Rosenthal, many examiners are taking a hard stance on exams to protect the share insurance fund.
"There is a feeling that in many instances examiners are slamming, triple-locking, and boarding up the barn door after the cow or chicken has gone. It's such a strong counter reaction to the losses that have been incurred in the system-regulatory practices and regimens have gotten very difficult for smaller institutions."
Godfrey-Smith said her credit union often hears the question from examiners as to whether decisions the CU makes are "material. Small credit unions may have some negative earnings and have reduced net worth, but are those things going to be material? If we can just ride this out, give us a chance to get past these assessments, to gain a period of restoration, and institute a moratorium on forced mergers except in cases of gross negligence. Do that and I believe we will have a lot more credit unions thriving again in two to three years."
Small CUs Not The Threat
Rosenthal and Godfrey-Smith, as well as a number of other sources contacted by Credit Union Journal, feel the pressure being applied by regulators to small CUs is undue, particularly because small credit unions do not pose the threat to the share insurance fund that the larger credit unions do.
Deborah Peters, CEO of the $19-million Incol CU in Old Forge, Penn., emphasized that "small credit unions are not the ones that are failing. They may be merging because of staffing issues, but the CAMEL 4s and 5s are big credit unions in the sand states. We are not going to be the drain on the insurance fund-one big one is going to do that."