Friday, July 08, 2016

The Height of the Ridiculous….

Got to tell you something.  Can't really explain it. Somehow in dredging back through the NCUA risk-based capital (RBC) rule, one bizarre thought kept popping into my mind, time and time again....

The thought, the recurring insanity?  That the  risk-based capital rule was secretly ghost-written by humorist/movie director Mel Brooks; or that the risk-based rule (at least that infamous first draft!) may, in fact, actually be the original, rough-draft manuscript for Brooks' 1974 movie classic "Blazing Saddles!"

If you've never watched the (uncut version) of the movie "Blazing Saddles" then it's a little hard to explain the very high level of very low brow humor it entails.  Scene after scene, line after line, joke after joke, the movie runs the full gamut from ridiculous to the absurd - and then back again! If you like slapstick and vaudeville, laced with scatology, "Blazing Saddles" is your ticket to paradise.

Cleavon Little, as Bart the sheriff, and Gene Wilder, as his sidekick The Waco Kid, set out to win over and save a small town from the bad guys - the standard, classic theme of the "Western movie" genre. 
"Stop or I'll shoot!"
[Cleavon Little]

The first problem they confront when they ride into town is a hostile mob of town folks determined to kill the new sheriff because he's black.  Bart strides directly into the midst of the heavily armed crowd; stops and pulls his gun; points his gun at his own head; and yells to the crowd: "Drop your guns or I'll shoot!" 

There is a tense moment of hesitation, but reluctantly the town folks all drop their weapons.   At which point Gene Wilder leans over to Bart and whispers: "You have to remember that they are just simple folks, the common clay of the land, you know - morons." Get the picture (so to speak)

So, what's the comparable, similar absurdity in the NCUA risk-based capital rule?  Well, to me the number one example is the requirement that all credit unions must deduct from your capital - dollar for dollar (or Dennis for Dennis if you prefer) - the entire amount of the 1% deposit you have at the NCUSIF!  That's right NCUA is requiring a 100% write-off (guess if it makes you feel better you can call it a 1400%+ capital risk-weight) of your deposit with them!!! 

So, the NCUA hss publicly declared the NCUSIF - 1% of your credit union members' deposits - to be entirely worthless - the worst risk on your balance sheet!!!

If Cleavon Little were the Chair of NCUA, he would stride into the next NCUA Board meeting, pull his gun, and say to the senior staff….

"Don't write it off !
… or I'll publicly declare the Agency to be 

incompetent and insolvent!"

Are they "…  just simple folks, the common clay…"???


Anonymous said...

Thanks for making me laugh this morning....remember the scene well! You are correct on the 1%.
I seem to recall that somewhere in the proposal there was a mention that all of this risk weighting was to determine the liquidation value of a credit union's assets. If a credit union were actually being liquidated, I believe the 1% would be available for attachment as an asset of the individual CU. We give them 1% of our assets to manage (not too well as you pointed out in a previous blog entry) and the earnings on those funds (currently about 30 basis points) are used to pay for failed credit unions and/or other system losses. Until and unless system losses exceed 30 bps, the 1% deposit is untouched. In fact, when the excess drops below 20 bps the NCUA would assess credit unions in order to return to the 30 bps level.
Another proof that the 1% is ours and is real is if we change our charter, we get the 1% but not the retained earnings from the 1%.
Georgia Birddog

Anonymous said...

Noticed the same insanity - what could they be thinking (unless leading to the next step to write it off to be more "bank-like"), but as usual, you make the point much more clear, and memorable.

Blazing Saddles - cause my a$$ is getting chapped over all this insanity and regulatory over-reach...

Hello, Hello, is this thing on?

Reminds me of the frog in the petri dish... its getting warm in here, think we need to take some action and jump the heck outta here before we become frog legs at the NCUA's dinner table?