Chairman Fryzel: Slow This Train Down
So what's the big hurry?
A dark shadow has fallen over Credit Union Land. The Corporate Network (specifically at this point in time U.S. Central) faces a liquidity crisis because of investments that have fallen well below book value.
NCUA has responded to the threat by organizing a natural-person CU liquidity solution, CU SIP and injecting another billion dollars directly from NCUSIF. At the same time it has put out a 60-day request for comment, essentially asking NPCU's what do you think the corporate network should mean to you? My question is: What's the rush? Will our comment or any comments mean anything, or has it already been decided as to what is to be done and the ANPR is just a nice cover. It is not like we haven't bought the time. We have, and it is expensive, so let's use it wisely because, despite some opposing opinions, most credit unions need the corporate network.
I think Chairman Fryzel has taken the immediate steps needed to stabilize the situation and given us some time to seek more permanent solutions. There are some questions that come to mind that deserve answers. PIMCO's conclusion's, paid for by credit union funds, should be disseminated to credit unions through their corporates. I think that the NCUA board needs to look inward to determine how the lack of regulatory oversight contributed to the current difficulty. In a recent case, concerning some credit unions, NCUA's Auditor General found that NCUA's role in a $100-million loss, more specifically its lack of oversight, was a significant contributing factor. One can only conclude that the same might be found in this case. If that proves true going forward, without the benefit of regulator reform, will eventually lead us to the next problem. Maybe one we can't fix.
I am surprised at the lack of comment on the part of other corporates in the network. In my estimation they can help shed light on what happened. Questions such as, "Does expanded authority put corporates in harm's way?" need to be asked. In my earlier life as a Corporate (CenCorp) Director, supervisory committee member, etc., I remember this question coming to the board. The conclusion was that the "bang for the buck" was not worth the additional expense and the benefit would be barely measurable when the associated risks were considered. Given that some time has passed I would like the opinion of the Corporate Network on why the offending corporates did not reach the same conclusion and forged ahead seeking that authority from NCUA. While I recognize that there is probably a view, on their part, that people will discount their opinion if they offer it you would have to be fairly paranoid to paint them with the same brush. If we fail to take advantage of their experience and suggestions then we will lose a valuable tool.
So let me head out on this limb: Chairman Fryzel, slow this train down. Let's get the PIMCO assessment under our belt before we move forward. Consider reversing the "expanded authority" and little else as to how corporates operate. Emasculating the network in an attempt to bulletproof them is not a good strategy for natural-person credit unions. It will certainly make it more difficult for corporates to build adequate capital levels and at the same time potentially disrupt the service levels of the network.
I have known, as many have, that losses in the network will be underwritten by the natural-person credit unions. Suggestions that somehow credit unions that did term investments with their corporates should be more liable for the losses are divisive and only ignite debate. In discussing this situation the other day I stated that if we were a privately insured credit union we would probably be thinking hard about participating in whatever solution unfolds. We are brothers and sisters in this fight; anything that potentially divides us must be avoided. One thing I do know this is a very serious situation that demands our acute attention. We can get through it but it will take us working together to do it. The same holds true for both the regulator and the regulated.
Dennis Moriarity, CEO
UNITY Credit Union, Warren, Mich.
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