Roll Tide...!!!

A Matter of Trust

You were hoping this would be about football, the playoffs - right?  Bad news!!  

It's about that other rough and tumble sport -  financial regulation.  But, in a sense there is one similarity with the college football playoffs; there are four regulatory finalists: OCC, the Fed, FDIC, and NCUA - one of which is clearly in a league by itself. 

The issue is trust as we all head into 2015, which promises to be "Year 2"  in the continuing, sorry saga of credit unions and the law of reason, et al vs. NCUA's ridiculous-based capital (RBC) proposals. Maybe it will be different this time around - right, Lucy?

But, what does a credit union do when the regulator gets it wrong?  Well, you can always appeal of course, which leads us to a white paper ("When Bank Examiners Get It Wrong: Financial Institution Appeals of Material Supervisory Determinations" (check YouTube)) presented by Julie Andersen Hill at a recent St. Louis Fed Conference.  

Ms. Hill is a tenured professor at the University of Alabama School of Law.  In her paper, Ms. Hill took a look at the regulatory appeals process at the four major financial regulators.  All were found to be lacking in many respects.  Ms. Hill had three recommendations for positive reform:

1.  Direct access to appellate authority outside of the exam function.

2.  Clear and rigorous standards of review.

3.  Public disclosure of appeal decisions.

Simple enough, very reasonable, easy to implement.  But, there seems to be some resistance. Know who was specifically quoted...?

[Ms. Hill] ..."For example, in addressing a proposal to create an ombudsman outside of each of the financial regulators to hear material supervisory determination (MSD) appeals, David M. Marquis explained:

"For example, there is no hard-and-true formula about proper asset diversification.  Today if an examiner looks at a credit union's books and sees too many mortgages with only a three percent down payment or inappropriately large mortgages, he or she will warn of over-concentraation in the exam report.  If, however, a credit union appeals this finding to an [authority outside the NCUA, the] NCUA could not point to the violation of a specific regulation, other than citing the fact that over-concentration is an unsafe and unsound practice."

Where have we heard this before?

Ah, yes... "the most arrogant and outrageous"...

Hope we can talk about this a bit more as we await the new RBC rule coming Jan. 15th.... 

What will be most unappealing in the next rule will be the "arrogant and outrageous" dangers of individual minimum capital requirements and 100 million American CU members subject to 1) "insiders only" appeals, 2) non-rigorous standards, and 3) no public transparency.

It's a Matter of Trust!

(... I'm sure we'll all get
a kick out of it !!!)