Credit Union Regulators Do a Good Job

The chorus of criticism about bank regulators and examiners recently reached such a crescendo that the White House called a meeting to discuss the issue. The president's good friend, Treasury Secretary Nicholas Brady, went on record to defend the regulators.

Some cabinet-level officers believe that regulators are making it tough for banks to lend money and are using words like "overzealous" and "high handed" to described regulators' efforts.

Credit union regulators aren't above the fray, either, if grumblings rising from some quarters of the credit union community are to be believed. Roger Jepsen, chairman of the National Credit Union Administration and the credit unions' top federal regulator, has been accused of going overboard in a "pointless" crackdown.

Mr. Jepsen denies such a crackdown and says that his critics are overreacting.

Pointless Regulation?

A look behind the scenes shows that truth in this matter lies somewhere in between. The NCUA has been tightening up the rules on real estate lending, clamping down on risky investments, and imposing more conservative accounting rules. But none of the changes the credit union agency has made merit an accusation of "pointless".

On the other hand, the agency has been somewhat less than enlightened in how it has implemented some changes.

For example, telling examiners - but not credit unions - that new rules would be used for accruing interest on delinquent loans and that a new formula would require instant increases in allowances for loan losses predictably raised the hackles of credit union officials.

A Year of Success

To its credit, the NCUA listened to the complaints and quickly instructed its examiners to back off, thus giving credit unions several months to prepare for the new rules.

Credit unions are financially healthy to a point where 1991 may turn out to be their best year ever. Credit union managers and volunteer officials deserve the lion's share of credit for that success.

But the examiners and NCUA deserve some credit for keeping the credit union insurance fund strong - and for maintaining high public confidence in credit unions despite sizable losses that a small number of credit unions caused to the credit union federal share insurance fund.

Indeed, the American Banker's own recently completed survey has shown that consumer confidence in credit unions has risen higher than confidence in any other type of financial institution in 1991.

There is no doubt that the NCUA is under pressure. It is faced with fraud in Rhode Island, failures in Massachusetts, and a surge of some 1,400 state-chartered credit unions seeking federal insurance.

Further, the agency has been taking on and training 200 new examiners (about one third of the total), rotating all six of the agency's regional directors, and issuing a flurry of new regulations.

The surge of state-chartered credit unions seeking federal insurance has generated particular emotion since many state regulators and private insurers see this as an opportunity for federal examiners to intrude on their turf and maybe even sound the death knell for their institutions.

Usually Responsive

To its credit, the agency has usually been responsive about addressing complaints about examiners when presented with the facts about a situation.

The credit union community has spent much time and energy over the past two years affirming to Congress that an independent NCUA is the most effective regulatory agency for credit unions.

The NCUA needs to make some changes in the way it does business. It needs to listen more and lecture less, give advance notice when change is in the works, and work more amicably with state regulators.

However, the NCUA has done a good job under difficult circumstances. It would be a mistake to pillory a good system because it isn't perfect.

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