Diekmann: Fryzel's Parting Thoughts On Tough Calls, RBC & More

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Over the years there have been NCUA board members whose terms were so unremarkable that their six years passed without even the agency's HR department knowing they were there. And then there's the term of Michael Fryzel.

As his term nears its end, it's interesting how many forget it was Fryzel, a late-term appointee of President George W. Bush, who served for a year as NCUA chairman whose first day on the job could basically be summed up with a "Welcome to NCUA, Mr. Chairman. Here's your new office, a key to the washroom, and you might want to check your email as a couple of big corporates are about to fail."

Fryzel recalled that before his arrival in Alexandria, Va., he had been hopeful of taking a long look at NCUA, its divisions and people. That long look got short shrift. "My first year all the concentration was on the corporates," said Fryzel, whose description of that year as having been "exciting" might surprise a few people. "We were working to get things in place to ensure natural-person credit unions would survive and that this would never happen again. It was very gratifying to be a part of. "

Shock & Anger
A big "part" of that was placing U.S. Central and WesCorp, into conservatorship, moves that shocked and even angered many inside and outside CUs.

"When we made those decisions they were quick decisions that followed a lot of analysis. I could not believe these corporates had been allowed to operate," he said. "When I got there they were really too far gone [to not be conserved]. There was no question... there was no other way to fix it. We needed to have a 'good bank' and a 'bad bank' system."

It was under Fryzel that the Temporary Corporate Credit Union Stabilization Fund was created, and in its wake came the unpopular assessments that put quite a strain not just on balance sheets but on the very concept of CU cooperation. As chair, Fryzel oversaw an increase in the borrowing authority of the CLF to $41.5 billion from $1.5 billion, and returned the exam cycle to every 12 months from the previous "Reg-Flex" schedule, that called for fewer exams. None of that gets a person an honorary Wegner Award for Industry Popularity.

Nevertheless, said Fryzel, "What has been satisfying is that as I have traveled the past few years people have come to me and said 'I didn't agree with you then, but I now know it was the right thing to do.' Had we not done that, up to 2,000 natural-person credit unions would have gone out of business."

NCUA board members are political appointees, and most come to the job with politics and not credit unions on their resumes. But Fryzel was different. Yes, or course, he had the political connections to get a nomination, but he also took his a board seat after having had considerable CU experience, including being director of the Illinois Dept. of Financial Institutions from 1982-89 and serving on the Illinois Governor's Task Force on Financial Services, before representing CUs as an attorney in private practice.

Fryzel brought to Washington from Chicago Sarah Vega, who led the DFI's Credit Union Division. Vega was a former chairman of NASCUS, which has lobbied for a state regulator to be always be represented on the NCUA board. It's an idea Fryzel doesn't support, noting many regulators are also political appointees. Similarly, he does not support an expansion of the three-member NCUA board. "Of course when I was chairman I supported a one-person board," he joked.

Appointees vs. Professionals
Asked about how his perceptions of NCUA prior to joining the agency conflicted with the realities he found once he started working inside the Duke St. headquarters, Fryzel said, "There was always the perception that staff ran NCUA and that they controlled a lot of what goes on. They are professionals, and they are there long after board members. But I always believed that having the board control things was the path to go. I looked to change the idea that staff ran things on the day I arrived. There was no time; decisions had to be made by someone in charge. What had been a 9-5 agency became a 24-7 agency in 2008. That cannot happen if the board is not focused on the day-to-day operations and on what is going on in the larger credit union world."

Fryzel's term at NCUA began with one high-profile, controversial issue—the corporate CU problems—and is ending with another, the risk-based capital proposal, which he has in the past called for "right-sizing." The latter has engendered thousands of comment letters, criticism and misunderstanding, and became the subject of a series of "listening sessions" by NCUA Chairman Debbie Matz around the country.

Changes to RBC Proposal
"I think there will be a lot of changes to the risk-based capital rule," he predicted. "There has been a lot of comment and, unfortunately, I will not be there to vote on it. People must remember that this is nothing but a proposal. Congress has said they want us to explain to the industry why this rule is right and we are working to do that. The risk-weight proposals will change. And when it comes to capital we want that to be decided by [a CU's] board, not by an examiner."

What's much less certain is whether another idea Fryzel favors will get any play.

"I think this is too technical a rule to not let the industry have another comment period," he said, calling for a second comment period to follow any revisions NCUA makes to its proposal. "It doesn't have to be as long, but it would allow for some tweaks to the final rule. We're not in crisis mode and there is not a need to rush to get this done."

Fryzel noted that Matz has indicated she does not favor another round of comments.

He said the feedback that has been received to date has been insightful. "The comment letters from credit unions have been well written. And the trade associations have done very good analysis and offered very good comment. We don't have all the answers at NCUA and we do read the comment letters. They are a tremendous help."

Has the economic downturn and regulatory failures that took place when Fryzel first came to Washington in 2008 pulled the pendulum too far in one direction?

"The atmosphere in Washington since that time has certainly been one of more regulation; the CFPB is a sign of that," he responded. "Everyone has gotten gun shy. I have said 'OK, now we're past the crisis and there are a lot of regulations in place. Let's step back. Do we need to change some things?' Credit unions have been inundated and you can't run a business when you are regulated to that extent. What can we do better and where can we pull back?"

Fryzel's term on the NCUA board expired in August 2013. But as is common, Congress delayed approving his replacement, only recently voting in favor of the nomination of J. Mark McWatters. Fryzel is waiting on McWatters to wrap up responsibilities related to his position as an assistant dean at SMU in Dallas before he exits NCUA.

Optimistic About Future
Fryzel, a frequent author of letters to the editor and supporter of greater collaboration among CUs, plans to stick around.

"I believe credit unions have a great future," he said. "Yes, I see the mergers every week and that's fine. I think that will continue for another year among the smaller credit unions. But that just means more services for members, and that's one thing we always look at, that service will continue for those members. There are going to be some big, monster credit unions, and there are going to be lots of smaller credit unions that are not going to need all that regulation. And the attacks from the banks and the banking industry will continue. But I very much hope to stay involved. I want to see credit unions continue to grow and do well."

Frank J. Diekmann can be reached at frank.diekmann@sourcemedia.com.

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