Monday, June 11, 2012

New SPAM From NCUA - Second Slice: "The Whole Hawg-wash"

Food For Thought At NCUA?
Well, let's take another bite of SPAM!  Sorry for the delay (see post - 6/7/12); but wanted to give you a little  time, after your first "SPAM snack", for your stomach to settle.    

Again, SPAM are the fabulous, new NCUA " backwards economic" MAPS which promise so much, but in fact, deliver so little!  They look like "ham", but you might want to peruse the list of actual ingredients a bit, before you "pack your economic lunch bucket"!

How did you do on the ROA SPAM test?  Make sense that ROA - "the profitability ratio" - can get a bit tricky to evaluate in a not-for-profit credit union?  Credit union members most often receive their "ownership dividends" through better rates/lower costs of service or better access and terms; not from a share in the bottom-line earnings, as for-profit investors expect.  It's the classic "patronage model" of a cooperative in which  member-owners increase their cooperative benefits through greater usage of the services.

Let's see how you scored on the test...


* Cute and colorful!


Hope it's clear that there is absolutely no reason for an ROA at a credit union unless you are growing or are taking on additional risks .  If "everything's cool" then all excess earnings should be returned to the membership. So...

  1. Q:  Full reserves and capital, not growing?  A:  A zero ROA is a logical target.
  2. Q:  Full reserves and capital, declining assets?  A:  A zero ROA and potentially a negative ROA are logical targets.
  3. Q:  Surplus capital, consider payout in "hard times"?  A: Absolutely through a "special dividend" or simply by better rates, lower fees.  Quite alright to have a negative ROA in this case isn't it?  Sure it is, since it's the members' money. Any doubt that your brand spanking new (but now "Disney Trained") NCUA examiner will agree?
  4. Q:  Geographic headquarters of CU should determine its NCUA SPAM impact?  A:  Clearly too simplistic in today's CU world; almost juvenile in logic - and increasingly so as CUs evolve.  Are Navy and Pentagon FCUs really principally tied to the Virginia economy? Do a Texas-based healthcare CU and a Texas-based energy extraction CU really belong in the same bucket?                                                                              Geography is a convenient tool and makes for pretty maps, but "the credit union economy" is well beyond this level of insophistication.  One last example, NCUA is headquartered in Virginia.  Has this location, the rapidly shrinking number of CUs, the Great Recession had any noticeable effect on NCUA's employment and wage levels, budget cutbacks, its "ROA" - or trips to Disney World?
  5. Q:  Quality of ROA?  A: The answer of course is "yes", but we'll save this for a different discussion - on interchange/overdraft/ALLL smoothing, etc.  But for now just remember "it's not about size" - of ROA!
  6. Q: Effect on state "averages" of large CUs?  A:  Again answer is definitely "yes" and we'll take a look at some specifics when we look at the NCUA SPAM loan maps.  For now consider this, there are about 7,000 U.S. CUs with assets at $1 trillion.  The 4 largest CU's manage 10% of those assets; the 100 largest manage over 50% of total assets; the top 250 manage over 80%.  250 CUs with 80% of assets out of 7,000 can "skew" a lot of state and industry averages; but then again "striving to be (peer) average" is a "best practice" at NCUA.
  7. Q: Who decides "bad from good"?  A:  Don't know what you answered, but it should have been "It's the members, stupid."
  8. Q: Bologna?  A: Yep, any way you slice it.... 

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