The recent coverage of the request by representatives of the credit union trade associations for NCUA to return to an 18-month exam cycle brought back memories from 2008-2009. I was serving as NCUA chairman at the time, and it was discovered that some credit unions had not seen a representative from the federal regulator/insurer for 24 or 30 months or beyond. As a regulator, it was frightening to see that depository institutions had been allowed to operate for such an extended period of time without having an on-site visit by NCUA.
The revelation of what I believed was a failure by NCUA to adequately ensure the safety and soundness of the financial institutions under its jurisdiction, compounded with the less-than-stringent monitoring of corporate credit unions, clearly pointed to and justified the need to return to a strict 12-month examination cycle.
While I acknowledge and am gratified to see the health of credit unions has greatly improved since the recession and valuable new tools are in place by which the regulator can monitor activity off-site, I am not convinced that NCUA should do away with contact on an annual basis.
Conversely, I would not want to dismiss any arguments or positions someone may have on the merits of improving or changing how and when exams are conducted. A process can only be improved if all parties are open to suggestions and are willing to discuss how methods can be improved. I am in agreement with those who have suggested NCUA listen and participate in a dialog that could benefit all parties.
An issue of such importance as how often credit unions need to be examined requires discussion among all parties of interest to that topic. Opinion pieces in the media create interest in the subject, but nothing will change or be resolved unless the parties of interest meet and discuss the pros and cons of any changes.
Comments by trade representatives like "we conclude in today's environment credit unions do not warrant a 12- month exam cycle" and "moving exams to an 18-month cycle does not threaten safety and soundness" give the impression that they already have drawn their conclusions and would lead one to believe that they would enter any discussions with their minds already made up. Similarly, the regulator should not summarily dismiss any suggestions for reconsideration. If dialog is to be productive it must begin with open minds.
The reason NCUA went to a strict 12-month exam in 2008 was, at that time, clear and unchallengeable. Considering the environment, the impact of the corporate credit union failures on natural person credit unions and an economy in turmoil, strong and decisive action was needed by the federal regulator.
Seven years have passed and significant improvements have been noted, but we must remain cautious. Global markets, foreign activities as well as the volatility of our own stock market tell us conditions can change at any time requiring adjustments to be made. As long as we keep in mind the problems we encountered and that additional hurdles may be faced in the future, there is no reason not to discuss new and different ways to meet those challenges and still maintain a strong, viable and consumer orientated credit union system.
The NCUA Board will make the final decision on any changes, but before they do, all parties should be allowed the opportunity to state their case.
My philosophy on regulation has always been "as much as necessary and as little as possible". I still profess that as being the best way to approach and discuss examination cycles and any other regulatory issue.
Michael E. Fryzel is an attorney and consultant to the financial services industry with offices in Chicago. He is a former chairman of the National Credit Union Administration and board member. He can be contacted at:
