Tuesday, January 22, 2013

NCUA Mitigate Thyself ! ....

Deja vu all over again !?

Let me give you a very succinct example of why reform at the NCUA should be your Number 1, Number 2, and Number 3 priorities in 2013.

Note these precise quotes:

"[The Corporate's] failure resulted from a number of factors, including an inappropriate investment strategy, an inadequate risk management system and insufficient board oversight, lax regulatory supervision and examination, and inadequate capital."

"NCUA's supervision of [The Corporate] was ineffective on several fronts. For four years, NCUA essentially tolerated weaknesses in [The Corporate's] internal controls; also, examiners who lacked investment expertise evaluated individual securities rather than securities portfolios, overlooking aggregate interest rate risk."

"[The Corporate's] failure raises concerns about interest rate risk being taken by credit unions, especially in CMO investments. Corporate credit unions are more likely to hold CMOs in their portfolios than are their members."

"NCUA not only let [The Corporate] take on substantial investment risk without sufficient controls, it also failed to evaluate the risk of [The Corporate's] entire portfolio or to reflect that risk in assigning CAMEL ratings for [The Corporate]."

"NCUA raised [The Corporate's] CAMEL rating from a 3 in [YEAR] to a 1 (the highest rating) in [3 years later], even though it had increased its exposure to CMOs and had failed to effectively address problems raised in previous exams."

Now about this point the apologists at and the apologists for the NCUA are mumbling platitudes such as:

"The Great Recession is different, no one could have seen it coming.  The collapse of the Corporates is such old news. CMOs and mortgage backed securities were new to everybody.  It's not fair to keep penalizing the Agency for a unique, unforeseeable, once-in-a-lifetime crisis."

Well, actually they're right about one thing, it is old news...

All these quotes are from a February, 1995 report prepared by The U.S. General Accounting Office(GAO):
"The Failure of Capital Corporate Federal Credit Union"


1995 !  1995 !  1995 !  1995!

Twelve years before the 2008 Corporate collapse NCUA knew:
  • Corporate credit unions had major issues.
  • NCUA examiners are not adequately trained.
  • The CAMEL system is not effective.
  • Mortgage securities pose huge risks.
  • And, since CapCorp was federally-chartered , there was no state regulator to blame (or override!)

Today, eighteen years later, little appears to 
have changed except:

  • Our members now have a $15 to $25 billion bill to pay for the last Corporate collapse.
  • A demonstratively rogue NCUA CAMEL system is now pre-emptive.

NCUA continues to function with many of the same people, practices, systems, and "attitude" of noblesse oblige - unsupported by any clear evidence of excessive competence.

We're not taking the rap !
But here's why you need to make NCUA reform priority # 1, 2, & 3 for your credit union, before the next NCUA miscue.  You are about to have another party get involved.  Look at the:

 Recommendation made to Congress 
by GAO in 1995 
(MIND IF I REPEAT ...?  1995!!!  1995 !!!):

"Congress should continue to oversee NCUA's actions to ensure that an effective regulatory framework for corporate credit unions exists, including adequate capital requirements, and CONSIDER LEGISLATIVE ACTION IF NCUA FAILS TO IMPLEMENT THE NEEDED REFORMS."(GAO, Feb. 1995)

.... NCUA ignored the GAO call for reform concerning Corporates in 1995 at great expense to your members and at great reputational damage to the Credit Union movement.

Naw,  we"re experienced!
We know how
to do both well
- sink and swim !!
Now it's once again time for reform and renewal at the Agency.  But, as in 1995, the Agency scrambles "to duck" its duty to you, your members, Congress, and the taxpayers.

Congress clearly isn't going to accept responsibility for "the next event"... nor should your members be threatened with another bill for unnecessary regulatory risk.

We're "on notice".... 

What are you going to do about it?  


Anonymous said...

NCUA has to stop rewriting history! What is not FAIR is that NCUA has not been or ever was penalized for a unique, unforeseen, once-in-a-life time event.

Can anyone identify the penalty that was foist upon an innocent agency? A junket to Disney on membership money for consistency training is hardly a harsh penalty!

Anonymous said...

Remember the many trade blurbs on "flight from the Federal charter" from 8-10 years ago? The real story, which almost everyone missed at the time, was the Corporate CU's flight TO the Federal charter as NCUA homogenized all corporate activities and powers using inside the beltway wisdom. How'd that work out for all yawl?

Anonymous said...

It is refreshing to hear someone speak the unmitigated truth about the corporate CUs failures. Notwithstanding, I am presently concerned about the pending lawsuits against the big banks and the previous settlements for "peanuts" on the dollar. The GAO stated that settlements of that type create future moral hazards. For a mere slap on the wrist, the banks can now just expense their frauds as a budget line item.