A Message For NCUA's Stakeholders
Clearly there is a great deal of stress in the credit union industry, and I certainly understand the angst that credit union officials are feeling. They are paying a heavy price for losses — at other credit unions. At the same time, their own credit unions are dealing with tight budgets, narrow margins, and members who are struggling to make payments.
I also understand that NCUA is an easy target at which credit union officials can unload their frustration. During tough times when the financial conditions of many credit unions are declining, some do not understand why NCUA must strengthen regulatory resources to protect safety and soundness.
Effective regulation, however, is counter-cyclical. This means regulators need more resources — not less — during their industry's lean years. NCUA is not unique in this regard. For example, FDIC raised its budget 55% last year before leveling off this year.
At NCUA, we have been working to keep our budget increases as low as possible, budgeting only for necessary items. This includes hiring and training the staff needed to return to an annual examination program so we can catch and correct problems in credit unions earlier.
NCUA's enhanced supervision program is designed to ensure that the credit union industry will get through these tough times stronger and more resilient. Unfortunately, some credit unions will not make it through. But our goal is to keep the costs of resolving those failing CUs as low as possible.
Minimizing Credit Union Losses
In fact, we completed 2010 with 28 consumer credit union failures — five times fewer failures than the banking industry.
The costs of those failures amounted to less than $300 million. However, the NCUSIF had budgeted for losses of $750 million - because at the beginning of 2010, there were dozens more credit unions in danger of failure.
While the public only sees the failures, regulators also see the successes. For every failure, we could cite many more cases where we have worked to avoid losses to the fund.
This has been NCUA's untold story - until now. At the same time NCUA was developing a comprehensive resolution the corporate CU crisis, we were doing everything in our power to avert a consumer CU crisis. It is impossible for anyone outside of NCUA to know how long and hard we worked to find creative ways to avert failures of several very large CAMEL 4 credit unions. If these CUs had failed, they would have caused staggering losses that would have been paid by all insured credit unions.
Fortunately, we were able to resolve many cases with carefully crafted Letters of Understanding and Agreement that required management to reach critical performance targets on a timely basis while operating under close NCUA supervision. In other cases, we collaborated with boards to interview and select new CEOs who brought special skill sets needed to address their CUs' particular problems.
In more urgent cases, it was necessary for NCUA to conserve credit unions in order to return them to viability. NCUA has had success helping several conserved credit unions recover, but it is not in the business of running credit unions permanently. Our desired outcome is to restore control of credit unions to their membership.
However, some CUs could no longer sustain operations on their own. Fortunately, in the majority of those cases, NCUA was able to find merger partners to acquire those troubled CUs and enhance services-often at little or no cost to the NCUSIF.
And now we have another tool in our toolbox. S. 4036, the NCUA legislation that President Obama signed into law last week, will allow NCUA assistance to troubled credit unions to count as capital. This will reduce acquisition costs for merger partners and ensure surviving CUs have an even stronger capital buffer.
The result of these efforts is that now some of the previously endangered credit unions are stabilizing under continued strong supervision. If we are able to hold the line on failures, we will again save hundreds of millions of dollars in potential losses.
It is important to note that NCUA does not assess credit unions for the dollars budgeted in either the Insurance Fund or the NCUA budget. Credit unions are only charged for dollars expended.
Already we know that one line item in the 2011 NCUA budget will not be spent. Effective Jan. 1, President Obama signed a pay freeze affecting federal workers whose salary increases were not negotiated under existing union contracts.
NCUA will certainly honor the pay freeze for all affected employees — and we will reduce our budget accordingly. The cost savings will be shown in July when the NCUA board conducts our annual mid-year budget review.
As President Obama said, "Federal workers are not just a line in a budget. They are public servants who, like their private sector counterparts, may be struggling in these difficult economic times."
So please understand that many NCUA employees will be making their own sacrifices along with credit unions.
But I assure all stakeholders: NCUA will not sacrifice safety and soundness as we work to help the credit union industry recover in the coming years.
Debbie Matz is the Chairman of the National Credit Union Administration. She can be reached at firstname.lastname@example.org