Hard Questions, No Easy Answers for One NCUA Board Member

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The "Q&As" that often follow speakers' remarks at CU conferences often stand for "Quaint Atmosphere." Audience members lob up softball questions. Speakers bunt them back.

Not so when NCUA board member Gigi Hyland was speaking at a meeting last week. After Hyland had finished her prepared remarks, she opened it up to questions and one CU board member strode to the microphone and cut to the chase: "Why should we have faith that NCUA has it right now when so many major mistakes can be said to have happened during the most recent crisis?"

So much for the queries of the "Tell us how you've enjoyed your NCUA term" variety.

To her credit, Hyland didn't seek to lay blame anywhere else. "It's a great question, and I don't have an answer," Hyland responded. "In this crisis we have all learned lessons in looking over our shoulders. One of the things it behooves NCUA to do, which we are starting to do, is to document where we saw things go wrong and how can we improve processes so that in the future it doesn't happen again. Part of that is a recognition of the old adage that the federal government always responds to the last crisis. One of the things you saw...is that over many years the examiner force had declined to where we were pretty thin. We had a lot of seasoned examiners, but no succession-planning component. When we needed a lot more examiners to be in one place, i.e, the West Coast, we didn't have those people as back-ups. We are now working to develop people coming up in the ranks.

"Another thing the agency is looking at, and you'll see it in the upcoming exam cycles, is examiners are going to follow up more quickly on things they see," continued Hyland, speaking at the Volunteer Leadership Institute hosted in Maui by Paragon Consulting Group. "It's not meant to sound dire, but we have seen instances where a credit union is going along fine, but then the bottom drops out, and the examiner had seen something early on. We are asking ourselves how do we as an agency act more quickly?"

Hyland added that to nearly every question surrounding the downturn in the health of many credit unions' balance sheets, the losses posted by numerous corporate CUs, and the need for special assessments to prop up the NCUSIF, there are "no easy answers."

And it's not going to get any easier. Hyland noted the one issue now keeping "examiners up at night" is interest-rate risk. "Members have money with you right now because they have faith in you. But when rates rise, it's not staying. What are you doing when that money goes rocking out the door?"

Other questions from credit union volunteers for Hyland included:

Q: "What about the 2010 NCUSIF assessment?"

A: "There are about 18 factors that go into whether we need to assess a premium," said Hyland. "2010 is going to be a rough year. I cannot predict to you whether the premium assessment will be on the low side or high side; it really is a 'time will tell' event."

Q: "What about the corporates? The same people who rubber-stamped (these decisions that caused the losses) are still there? How are some of the policies going to change?"

A: "The 270-page (NCUA corporate proposal) lays out a variety of different plans," answered Hyland. "Part of the changes have to do with ALM and how corporates run their business. There has been a lot of discussion in this proposal about the right level of capital...to look a lot more like other financial institutions. It also talks about who should be on the boards of corporates, and that they should be active CEOs and CFOs of member credit unions."

• At the same meeting, while many are focused on those NCUSIF assessments that have gotten all the headlines, Paragon Consulting Group's Jim This noted, "One of the big reasons credit unions are struggling is not necessarily the NCUA assessments, but record charge-offs. What's going to happen in this next year? If I was a betting person I would say we're probably going to have a continuation of that."

• Other notes from the meeting:

  • Credit union directors were welcomed to the islands with a traditional Hawaiian song. It was sung by several-dozen members of the host Marriott Hotel's housekeeping staff.
  • Dennis Tanimoto, president of the Hawaii Credit Union League, reported that 60% of the islands' residents are now credit union members, representing some $8-billion in total assets. And yet despite that penetration rate, the 90 CUs in Hawaii when combined are just the third-largest financial institution in the state.
  • At the Maui airport, several travelers turned some heads because they were wearing blue T-shirts emblazoned on the front side in large letters with the word, "Eligible." Everyone's initial thought, of course, was these folks had finally reached the point of going public to find that much sought-after soul mate, and curiosity led many to read the backside of the shirts. There they found the logo of Hawaii State Employees FCU, and the URL "www.ur-eligible.com."

Frank J. Diekmann is publisher of Credit Union Journal and can be reached at fdiekmann@cujournal.com.

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