Explaining The IMCR Appeals Process: THE OMBUDSMAN...

Mr. McHenry

As you know, Representative Patrick McHenry (R-NC) -  who sits on the House Financial   Services Committee - wrote to Chairman Matz on July 7th, asking for a little more information and a whole lot more explanation on NCUA's proposed rigged-based capital (RBC) rule. Chairman Matz was prompt with her response on July 18.

Nice work!

But, as has been typical of NCUA's prior ham-handed, efforts on RBC damage control, Ms. Matz's letter only succeeded in fanning the flames of controversy higher - now Rep. Jeb Hensarling, Chair of the House Financial Services Committee, has jumped into the fray!  NCUA continues in its inept Congressional correspondence to make the Veterans Administration (VA) - apparently unintentionally - look completely competent!  

VA - roooom!

So what would a normal, reasonable person do in this ever evolving self-inflicted,  political disaster? Quit while you're behind - right? Well no, Chair Matz decided to "double-down" and write another

letter !!!! This time to Chairman Hensarling!! (With exactly the same results!)

No noose is
good noose!

Again, the key burning issue, for most credit unions in the RBC rule, is the "individual minimum capital requirement" (IMCR), which gives the increasingly erratic leadership of the NCUA unlimited, capricious authority to single out and persecute any credit union - without appeal nor due process provisions.

Chair Matz has taken up the IMCR issue at several different venues, including the listening sessions and in her letters to Representatives McHenry and Hensarling, protesting that the proposed IMCR rule does in fact include full, independent appeal rights for every persecuted credit union through NCUA's Ombudsman. Here's the exact wording from the proposed RBC rule:

747. 2006: Review of order imposing IMCR

"9) Ombudsman.  A credit union may request in writing the recommendation of NCUA's ombudsman to modify or to not issue a proposed IMCR..."

We're always right!

Well, it looks to me that Ms Matz is right! The proposed rigged-based capital (RBC) rule does in fact permit credit unions to appeal their persecutions through the existing NCUA Office of the Ombudsman process.  So, I thought I'd venture over to the official NCUA website (www.ncua.gov - About NCUA/Org. Chart) and take a look at how the ombudsman works. Here's what I found...

NCUA RBC Rule: Not A Prayer...

Well, the Board Meeting's tomorrow! Will...

.... say "grace"...???

NCUA RBC Rule: Time to Save Grace?....

What are the
real issues?

Y'know, in going back over the multitude of comments made on NCUA's proposed risk-based capital (RBC) rule - in 2,000+ comment letters, listening sessions, Congressional letters, news clips, opinion pieces and conference speeches - three key questions surface repeatedly  to the point of discomfort.  The three recurring issues are 1) competence, 2) trust, and 3) grace.

Competence - No one expressed this concern any clearer than Steve Van Beek at the recent NAFCU Annual Conference, when he told the CUJournal: "The biggest concern is it feels as if NCUA did not do its homework upfront. They did not talk to credit unions, and they did not talk to the trade groups - and there were offers."

What's truly unnerving to many credit unions is that Chairman Matz effectively and almost casually confirms this lack of due diligence by the Agency in such remarks as these from the Alexandria Listening Session:

"We know that all the risk weights need to be reviewed.  We know we need to change [lower] investments, CUSOs, corporates, mortgages, and business loans." [at 3:30 on the tape]

Competence?

"I want to assure those of you who do "ag" lending and taxi medallion loans that it was never our intention to put you out of business. So for sure we will remedy that situation." [at 4:15 on the tape]

[On individual minimum capital requirements - IMCR] "What's surprising is that that exact provision is in existence today and we have never used it because it is so cumbersome and difficult to use."[at 6:30 on the tape]

Trust - Over the last few years, many credit unions have grown "to feel like Charlie Brown" in their relationship with the NCUA ....

"You Can't Always Get What You Want, But If You Try Sometimes You.." *

"You don't know what to ask for, if you don't know it exists."

(Why not just ask for what you need?)

* It's from a Rolling Stones song, for those of you too young to know....

NCUA Call Report: Credit Union Membership - A "Potential" Stochaste...

The "buzz" has already begun on the countdown (

UFG !!

perhaps that should be "countup"?) to the magical number - 100 million credit union members in the U.S.! 

Definitely a watershed moment - right?  CUNA in its excitement has even put aside the UFG campaign (don't try to make that into some sort of vulgar text message abbreviation - it stands for Unite For Good!) in favor of a spiffy "100 million member Flashdash".

In the "loop"..."robustly"??

What's even better than the trade association push, however, is the cooperation from the NCUA in validating - through those ever important, "file-on-time-or-die" 5300 Call Reports - the official, Federal agency confirmed membership count.  As always we can rely on the economic robusterians and stochastically-enhanced gnomes over on Duke St. to give us the right metrics....

Getting There....

You expect me to do what...?!

Not sure about the logic of telling a new employee that...

 "The sky is the limit!"!

... when in reality most folks usually "get there" by "digging ditches".

RBC Listening Sessions: The Final Diagnosis...

An unappetizing mixture
of fruits and nuts.

After listening to the Agency's responses, reactions, and tone at all three sessions:

"PARANOIA IS OUT TO GET YOU!"

"Irrational minds can create a climate of fear and blame."

"People with a disposition toward extreme paranoia see betrayal and disapproval everywhere. Believing that people are out to get them, they frequently misinterpret situations, seeing hidden meanings and potential threats in ambiguous circumstances. Consumed by their own fears, they fail to read the motivations and intentions of others."

- Financial Times (7/18/2014)

Yep, seems quite clear that the RBC intransigence of the Agency is a classic case of...

NCUA's Risk-based Capital (RBC) Rule: Tee'd Up....

NCUA:  "Now hold on, let me explain
where we were heading with IMCR..."

Think most credit union folks agree that the most disconcerting provision in NCUA's proposed RBC rule is the section - called individual minimum capital requirements (IMCR) - which gives NCUA staff the unfettered right to unilaterally impose whimsical, arbitrary capital standards on any and all credit unions.  NCUA is backpedaling as hard as it can go to "explain away" the clear, unequivocal wording on IMCR in the published text. 

Representative Patrick McHenry (R-NC)

Hopefully Representative McHenry and the House Financial Services Committee will not buy the desperate, unartful spin now being churned out by the laundromatz over on Duke Street.

Duke St. Laundromatz -
The Spin Cycle!

But in case you needed more proof, the NCUA examiner staff have just been issued...

"The Official NCUA RBC SOUVENIR T-Shirt"...

Analyzing The Chances For A Second RBC Comment Period...

Have some late breaking good news! 

We're colorful !!

The "Crayola economists" over at the Agency have issued a new forecast on the likelihood that Chairman Matz will be reasonable and permit a second comment period on the proposed risk-based capital (RBC) rule!

... see!

Their latest forecast used the very same "robust", quantitative methods applied by NCUA when formulating the RBC rule - and those "risk weights"!  Based on those precise, exacting techniques; the Office of the Chief Economist, in conjunction with E&I and the Capital Markets group, predicts that Chairman Matz will change her mind when...

RBC Listening Sessions: "Hammer" Time...

Second comment period !!

"For those of you who kept asking and asking for a second comment period at the listening sessions; not quite sure what part of "no" you don't understand !!??!"  

"'Cause hey, I told you! Why yah standin' there?? Yo sound the bell, man; school is in, sucker; now listen up homeboys... Let me "break it down" for you on another comment period, YOU... "

NCUA Uses the GAO To Weasel Representative McHenry...

This is going to be a doozy
of a hearing - under oath! 

NCUA apparently has absolutely no fear (and perhaps no respect!) for members of Congress - or perhaps the noblesse oblige applies just to Representative Patrick McHenry (R-NC).  Let's take another quick look at Chairman Matz's response letter of 7/18/2014 (here's  the link) to Rep. McHenry:

From page 4, paragraph 2:

"NCUA also proposed retaining the tiered risk-weighting approach in the current risk-based rule to account for the risk associated with credit unions holding higher concentrations of member business loans and mortgage loans. Maintaining the tier risk-weighting approach is consistent with a 2012 report by the General Accountability Office [GAO], which specifically recommended the NCUA address such concentration risk. Similarly, NCUA proposed maintaining the tiered risk-weighting approach in the current rule for long term investments in order to account for interest rate risk and liquidity risk."

Da Drop !

The NCUA has an unseemly tendency to "name drop" highly reputable agencies to enhance its less than stellar credibility, and to justify its own arbitrary actions  by insinuating other agency support. Let's take a closer look at exactly what the GAO said in that 2012 report (Here's the link to GAO - 12 - 247)....

The Response To Representative McHenry: Somebody Appears to Be Lying...

This could get interesting -
under oath!

As you know Representative Patrick McHenry (R-NC), who sits on the House Financial Services Committee, wrote to Chairman Matz on July 7, 2014 asking for an explanation of the many "anomalies" (nicest word I could come up with!), which surround the proposed NCUA risk-based capital (RBC) rule.  Here's a link to Representative McHenry's letter to Chairman Matz.

Representative McHenry asked for a response by July 18, 2014 from Chairman Matz about the issues he had raised.  Here's a link to Chairman Matz's letter of response.

Would like to call your attention to the 4th and last paragraphs on page 5 of Chairman Matz's letter which read as follows:

"Individual Minimum Capital Requirements"

"The proposed rule includes a provision that permits the NCUA Board (not any individual examiner) to require a higher minimum capital ratio for an individual credit union in an extraordinary case where the circumstances indicate that a higher risk-based capital requirement is appropriate.  The proposed rule also sets forth specific due process procedures that NCUA must follow before issuing an individual minimum capital requirement, including prior notice and a right of appeal." (paragraph 4, page 5)

"While it is the examiner's duty to recommend, through the chain of command, the imposition of an individual minimum capital requirement, if one is necessary, nothing in the proposed rule would authorize an examiner to take such action directly. Thus, this authority would be reserved solely for the NCUA Board." (last paragraph, page 5)

Having read Chairman Matz's response to Congress, would like to draw your attention to the actual verbatim language of the proposed RBC rule as published in the Federal Register (Vol. 79, No. 39, pg. 11207 - Feb. 27, 2014)....

From The Field...

"Eat Mor Chikin"

"We held our first Advisory Board B-B-Q supper.  It was terrific! We are ready to meat again..."

( Pig-out...!!)

Don't Sit Still..

Better Move it !!!

"RUST NEVER SLEEPS."

Dress For Success....

Lots of credit unions claim to have

super employees.

Some of us...

Listening Sessions: Alexandria - Wrap Up...

Thanks so much for coming!
How did you feel about our responses!!???

Listening Sessions: Alexandria - Not Phased At All By That Argument...

The phases of
the loon...??

"The inane RBC rule which has embarrassed us all profoundly appears to just be a ....."

Listening Sessions: Alexandria - IMCR...

"As to your concern about "individual minimum capital requirements"(IMCR), we just don't understand where this great distrust of the Agency comes from! You know we are fair, reasonable people who have your best interests at heart."

"We're open, we're transparent, we're accountable."  

"Besides the individual examiner will not be making these decisions; the IMCR will be made by me us at the Board and you can always appeal a bad decision to me us.  Why don't you just..."

Listening Sessions: Alexandria - An Italian Cruise Ship...???

Did our staff "Captain" formerly
work on the Concordia...

"NCUA has definitely embarrassed itself and the entire credit union movement by driving the U.S.S. RBC on to the rocks..."

So what do you do with
a "fatally damaged vessel"?

Listening Sessions: Alexandria - Secondary Capital...

"They love us "on The Hill,
just ask Rep. McHenry..."

"As to secondary, supplemental capital, of course we're for it and with the firm, solid support and high credibility of the Agency behind you, your chances on Capitol Hill are a..."

Listening Sessions: Alexandria - Retaliation...

"Us ? No way..."

"As to your fear of retaliation by an examiner or SE, you just need to..."

Listening Sessions: Alexandria - "Creating" Risk Weights....

"Our best people,
 doing their best work!"

"As to how our highly trained staff arrived at the published risk weights, after "over two years of diligent work"...."

Listening Sessions: Alexandria - "Communications"....

After a fairly lengthy and specific litany of complaints from the audience about problems with exams and examiners all along the East Coast...

The following was NCUA's response: "We don't know what's going on unless you tell us."

Which led to the very astute question from the audience...

Listening Sessions: Alexandria - Paving The Way...

"Of course we're open to
your supplications...."

"AS TO YOUR QUESTION CONCERNING BEING REASONABLE AND PROVIDING A SECOND COMMENT PERIOD...."

Listening Sessions: Alexandria - Staff Explains Its View Of The World...

The Yes-Buts...

"While we recognize your balance sheet premise, but.... "      

.... and then there was another "but", and another "but", and .... "but, but, but"....

It is very clear that we have a senior staff which is in...

Listening Sessions: Alexandria - Reviewing The Data (Sucker Punch...)

They are standard
deviationists!

"NEVER GIVE A ROBUSTERIAN 

AN EVEN BREAK !"

- W.C. Fields

Listening Sessions: Alexandria - Getting Started...

"We're here to listen...
not necessarily to hear !"

"FIRST BEFORE WE GET STARTED, LET ME TAKE A FEW MOMENTS TO INTRODUCE OUR PANEL OF STAFF EXPERTS..."

Listening Sessions: Alexandria - Pre-Meeting Staff Training Video....

On to Alexandria !!!

Thanks to all the staff members who participated in the Los Angeles & Chicago "Listening Sessions"; we're a smash hit! 

Credit unions actually thought we were listening which will really help our case, when we go ahead and do what ever we want.  Wasn't it really cute how they all agreed to sit at little tables and ask only one question!  Liked the way they all waved their hands at me begging to be recognized - just adorable !!

But, I need you to be more focused and act more interested for this last "hometown session". It's crucial that you keep up the charade - our ability to "IMCR them" in the future is at stake!  

I've put together a little training video which will help you practice "listening" (wink! wink!)...

Riding Recklessly On Hot Air ?

High finance, high times !

John Authers is a feature writer for the Financial Times. A scarily-sophisticated writer for the "#1, go to, financial rag" on the planet.  Last month he reviewed a new economic tome, "Money, Blood, and Revolution", by George Cooper.  

The Ro(bust)deo !!
Ride 'em "cowboys"...

The book is a critique of current economics as ".. a science in crisis" - with many of the dogmatic, lap-dog breed of robusterians continuing to use "... scientific models that have been decisively disproved, simply because nothing better has come along".  

You and I call this "riding a dead horse" or, more quaintly, "you can't fix stupid"!

Here's the brief summary:  "Five years ago, in the wake of the crisis, requiems were sung for such icons of financial economics as the efficient markets hypothesis, or the "Value at Risk" model for assessing the daily downside risk being taken in a portfolio. These ideas proved catastrophically inadequate during the crash. Yet they are still used.... Contrary to these economic axioms, [markets] do not tend towards equilibrium or fair value."

Which leads to an interesting question...

Changing The Rules: Responsibly.....

Why the Fed is respected...

"The US Federal Reserve is exploring an overhaul of the federal funds rate - a benchmark that underlies almost every financial transaction in the world."  

"It is likely to consult extensively with markets before any change."  

               

        - The Financial Times (July 11, 2014)

WOW!

Can you imagine that! The most powerful financial regulator on the planet actually consulting - extensively - with the knowledgeable, affected parties before a proposed change is suggested !  

Some independent federal agencies are smart, competent, engaged; others, well, ....

Regulating Credit Unions : No Legal Authority Required....

"Give us your..."

Last time I checked, your credit union - a democratically-structured cooperative - was owned and controlled by your members.  Your members have adopted a set of bylaws and operating principles by which their credit union should be managed.  Your members periodically elect fellow members to lead and monitor their credit union.

"Send us your Mama..."
( .. and some apple pie!)

An independent, democratically-controlled credit union - of the people, by the people, for the people - is as American as "Mom & apple pie".  

Were you and your members aware that you had adopted as your #1 CU priority for 2014 a goal of assuring that "long term assets do not exceed 35%"?  Well, you, your members - in fact all 100 million American CU members - have done just that under the undemocratic (and apparently unaccountable!) auspices of the unelected (an increasingly erratic!) folks at the (you guessed it!) NCUA.

Let's take a look at a direct quote from NCUA's 2013 Annual Report:

"Agency Priority Goals"

"The Office of Management and Budget encourages all agencies to prioritize goals in their strategic and annual performance plans.  An agency priority goal is a subset of the agency's performance goals and represents the highest implementation priorities. These goals represent near-term results or achievements to accomplish within approximately 24  months.  In 2013, the NCUA established two agency priority goals:"

[Here Ya' Go!!!  NCUA's #1 Goal For 2013/2014]

"Annual Performance Goal 1.1: Monitor and control risk in consumer credit unions, as measured by net worth growth in the consumer credit union system, the long term assets ratio, and net losses for current year failures as a percentage of average insured shares."

"NCUA successfully monitored and controlled risk in consumer credit unions in 2013 and achieved two of the three performance targets associated with this agency priority goal. We did not meet the goal for net long-term assets, which exceeded the target of 35 percent by 91 basis points.  Growth in first mortgages and investments with maturities longer than five- to ten-years contributed to the increase in the aggregate long-term asset ratio.  The Office of Examination and Insurance has developed additional supervisory measures for 2014 to address this trend."

Oh my !!

So, now you know why your examiner is berating and bullying you and belittling your Board for those "long term investments" and those "dangerous member mortgage loans".  And, now you have a more truthful understanding of why those bizarre risk-based capital (RBC) weightings are what they are.... 

But clearly The Office of Extermination and Insurance has some "additional supervisory measures" in store for all of us this year which is why the following is so important...

Defanging The B@*ks....

B@*kers catch some 
more "plaque"...

Just when you thought it couldn't get any worse,
now the b@*ks are getting drilled by the American Dental Association!  

The ADA has always been against anything

Straighten up !!! 

crooked and has therefore recommended that b@*kers put a cap on their bad practices, brush up on their consumer hygiene, and floss their ethics much more frequently.

Seems the dental folks believe that b@*ks, in America today, are one of principal causes of ...

Where There's Smoke...

Under questioning, the CEO said she
"could not recall...";
but later she did (17 million times!).

"The member said her car was "really smokin'", so she knew it was time to start lookin'..."

(Obviously drivin' a "hot car"...!)

From The Field....

Just like at the "Listening Sessions"!

"We were doing a fin lit session in a third grade class last week. Wasn't certain if the kids got anything out of it until I saw these two comments in the "Thank you" notes:

* "I learned it is hard to be an adult."  

*  "Now I know how my Mom feels."

(They "got it"...!)