Well, reckon we should look once again into the world of the CAMEL. Can feel you cringing all the way from here! But, I've heard (sp.?) of a couple of new varieties since we last talked. Do you know what they call a camel with no humps? Humphrey. How about a camel with three humps? That's right, a triumph!
I know, pretty bad jokes. But they seem to fit very well with an NCUA CAMEL monitoring system , which bankrupted the NCUSIF, which led an embarrassed CU movement begging - hat-in-hand - to the U. S. Treasury, and which cost credit unions and individual credit union members over $15 billion! Now that really is a bad joke - or, perhaps, a "Benghazian" regulatory lapse?
The NCUA CAMEL system despite all sensibilities and financial logic continues to step off, wrong-footed with an antiquated and dangerous "C" - the capital measurement. The capital-to-asset ratio as computed by NCUA is inappropriate in a deregulated environment and intentionally misleads the credit union movement, Congress, and the public. "High" capital-to-asset ratios are touted by NCUA as prima facie evidence that credit unions are safe and sound. Maybe, probably, perhaps, could be, but who knows for sure? NCUA? (See the topic "Corporates", if you answered "yes".) As with NCUA's capital measurements, the Captain of the Titanic...
... also probably used similar, simplistic estimates to determine how small an iceberg he was approaching.
All other federally insured depository institutions operate under - and have for decades - risk-adjusted capital standards. Why are credit unions the exception? Is it because credit unions operate in a more prudent, safe and sound manner? Maybe, probably, perhaps, could be, but who knows for sure? NCUA? (See the topic "Corporates," if you answered "yes".)
Three final thoughts. We all know that relying on capital-to-asset ratios - unadjusted for risk - helped bring the S&L industry to ruin, along with its in-bred, complacent regulator/insurer - the FSLIC. Most of those S&Ls had great capital-to-asset ratios right up until the day you and I "acquired" them as taxpayers through default.
Secondly, the credit union movement was originally structured on a member-owner, "at risk" basis. That meant the benefits and losses of the CU would be apportioned among each member. That's what a "cooperative" is by definition! Why do you think we call them "share" accounts? Risk recognition and sharing is part of our original heritage. Nothing unusual about risk-adjusted capital, except that NCUA remains "behind-the-times"; but on second thought, that "b-t-t" status is really no surprise.
Lastly for entirely selfish reasons, "risk" needs to be more accurately and appropriately measured and monitored; because all credit unions are inextricably linked together, through our obligation to fund all losses incurred by the NCUSIF. Our NCUA CAMEL monitoring system has failed us most destructively in the recent past... in case you hadn't noticed!
Your NCUSIF deposit - and your contractual insurance obligation to fund any and all extraordinary losses until your CU's capital is extinguished - is currently the most volatile and high-risk asset on your books. Maybe, probably, perhaps, could be, but who knows for sure? NCUA ? (See the...)
NCUA may continue to choose ignorance over prudence, precedence, and "the writing on the wall"(after all NCUA is "an independent agency" - unaccountable in so many ways!)....
3 comments:
Powerful post, Jim. One of your best. I wonder if NCUA ever reads this blog...
we once got all ones, a two and a three and a three overall and called unsafe and unsound until we complained.
A growing number of folks believe NCUA may be the unsafe and unsound "stakeholder" in the CU movement.
Maybe, perhaps, could be, but who knows for sure...
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