With the lively debate continuing over credit unions picking up the tab for U.S. Central and a handful of troubled corporates, one predominant theme seems to be emerging: credit unions must pay now because earlier they demanded high rates from their corporates. I take issue with this view.
First, not all credit unions are looking to grow for growth's sake. A large majority opt for managed growth that fits with their overall business models and capital plans. Their needs are being met by corporates that have stuck with the time-tested investment rule of "SLY." These corporates that have followed a prudent approach, allowed them to pay fair rates without needing higher-level (and more risky) investment authority and provide a high level of service. Yet, NCUA's stabilization plan paints all corporates one color: red.
This leads to my second concern: NCUA's Office of Corporate Credit Unions ought to have considered reputation risk and member confidence when developing its plan. Instead, the focus has been myopic and based only on what's good for U.S. Central. As a result, the corporates and natural-person credit unions that continue to be fiscally strong, have proven their value, and are satisfying their members are being sullied right along with those experiencing serious problems.
Third, why should credit unions' insurance fund-built with our members' money-be wiped out because of the actions of a few, or one? Back to the growth issue, U.S. Central could have shut off the deposit spigot or reduced the flow by adjusting its rates-a common financial tool. Then its capital could have better withstood an economic downturn.
All that being said, and as a user of seven corporates, I understand that ours is a mutual industry and that funds in the NCUSIF are meant to cover all credit unions failures; we cannot just pick and choose which are covered. It was just such a shock for everyone after years of having the NCUA tell us that any funds in a corporate were safe. One expects more from their regulatory agency.
Cary J. Anderson. CEO
LA DOTD FCU, Baton Rouge, La.
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