Wednesday, November 30, 2016

Want To Save A Quick $5 to $25 Million+...?

Not much help...
If you read the comments that were proposed on the NCUA budget, then you know that the Board found little that was instructive or helpful.  But, it was a great, positive transparency move by Chair Metsger to offer the opportunity! Thank you!

We do all now know that the NCUA Board will have to confront and solve a riddle that includes five key elements: 1) a shrinking, consolidating industry, 2) a budget dominated by personnel costs, 3) a shift from "people-based" to technology-based regulatory monitoring/analysis, 4) an existing staff without the requisite skill sets for the future, and 5) a labor union which must work with the Board to redefine NCUA jobs for the future. A very tough challenge!

But in the short run, if the NCUA Board would like to save an easy $5 million+ bucks annually...  

Tuesday, November 29, 2016

Secondary Capital... Part 2

Wanted to repeat that I haven't found anyone yet who doesn't agree that another level of capital (in this instance "secondary capital") enhances the safety and soundness of both credit unions in general and the NCUSIF in particular.

Recent "small victories" aside, the long absence of access to secondary capital by credit unions is a glaring neglect of priorities by NCUA under the Federal Credit Union Act.

But here's the rub, Check this link out and you'll find the existing rules (from the NCUA Examiner's Guide, section 16-4) on secondary capital for low-income credit unions - been in place forever! Yet the NCUA "Secondary Capital Working Group" continues to study its navel "on what to do next"?!?  There is a serious accountability, competency, and transparency issue here - and an unnecessary risk to the American taxpayer created by the NCUA.

Yet, take a look at the secondary capital presentation [here's the link] made by NCUA senior staff to the NCUA Board at its October meeting. You'll note on page 29 that 2,297 credit unions (over one-half of all credit unions), holding over $325 billion in assets  (@ one third of all CU assets!) can issue secondary capital now under existing NCUA rules. 

$188 million in CU secondary capital is issued
No Clue...?
and outstanding in the marketplace.
Is NCUA senior staff admitting that they have no clue on how that secondary capital was issued? I just don't get why the NCUA staff continues to fail to deliver on this safety and soundness issue?

And, just to make matters worse...

Monday, November 28, 2016

NCUA: Secondary Capital...

Despite their critics (many of whom may be permanently irreconcilable after the last, disastrous six years), the current NCUA Board has made "large progress, in little ways", the latest example being the simple extension of time given CU's to file quarter-end 5300 Call Reports. 

A "Big Deal"? ABSOLUTELY YES! It signals an 180-degree change in attitude in NCUA Board leadership; which, if pursued, is destined to "reform" the thinking of the NCUA senior staff. The Board has stepped-up to the task,
now the NCUA senior staff has the classic choice; "Lead, follow, or get out of the way." Let's hope for lots of innovative senior leadership! (... or the necessary departures!)

"Large progress" may already be at hand. The NCUA Board has promised an advanced notice of public rule-making (ANPR) on secondary capital in January.  The glaring absence of this additional alternative to enhance credit union safety and soundness well-defines the concerns many share over senior staff accountability, competency, and transparency. 

All other federally-insured institutions have this authority. The legal framework, accounting rules, and risk management structures for secondary capital have long ago been worked out, implemented, and tested in the marketplace. Rule-making for NCUA secondary capital should be little more than "cut and paste", the "regulatory heavy lifting" has already been done by their highly-competent, federal regulatory peers. But then again that was also the case with the now infamous risk-based capital (RBC) rule...

BTW, would you like to see the NCUA's senior staff "Working Group" (tempted to snark, but it's too easy...) secondary capital website? [here 'ya go!] 

Do note the following...

Saturday, November 26, 2016

NCUA: An Agency at the Crossroads...

We have been talking over the last few days about
Change must start at the top....
change at NCUA.  If change is needed at the agency, think we all recognize significant, serious change must come "from the top" - from the NCUA Board. 

The NCUA Board approved the "new" five year  "Strategic Plan" for the agency in September.  

Look to see if you believe the new, proposed NCUA Strategic Plan is a serious document - for it is the Board's plan. [here's the link - page 12]

Thought you might like to also consider a few excerpts from a recent opinion piece in the American Banker Magazine. The writer is Richard J. Parsons, a former BOA exec:

"When a bank fails and the resulting loss to the FDIC crosses a certain threshold, regulators are required to write a material loss report (MLR), explaining why the bank in fact failed. Well over 100 such MLR's have been written in the past few years."

"... the banks' examiners almost without exception gave these institutions good to excellent CAMELS ratings nearly right up until the point of failure."

"Start all the way back at 1979 - the year the CAMELS system was developed - and the total number of bank and savings and loan failures is now north of 3,400 institutions, including 470 that have failed since 2008.  The evidence of more than 3,400 failed banks and the ratings these institutions received shortly before folding simply overwhelms any defense of the usefulness of CAMELS."

"This isn't a matter of implementation or execution. The problem is the system itself... 

The U.S. needs a new, 21st century model for identifying, monitoring and reporting risk. It should be transparent to bankers, depositors, and investors in bank equity and debt.  The new model should be based on objective measures."

But Mr. Parsons suggests a solution...

Friday, November 25, 2016

Why Keep NCUA?...



Wake-up call!
[... here's the link] 


Thursday, November 24, 2016

Update On Retirement...



... AND AFTER...

Wednesday, November 23, 2016

Field Of Membership: An NCUA Priority? ....Why?

NCUA to propose new rule...?
Folks around the Country have until December 9, 2016 to comment on NCUA's proposed rule expanding the field of membership limitations for federally-chartered credit unions.  

The rule does not apply to state-chartered credit unions, which draw their FOM authority from their home state. Here's the link to the proposed FOM rule - BTW let's hope the NCUA is not also proposing to start regulating bathroom fans with more than one speed! (check out the link to see my concern!)
Britches getting a wee large?

Know of no objections to the proposed changes to the FOM limitations for federally-chartered credit unions (other than by the American "Braying" Association - 'da ABA!), did find the following statistics of interest from the 6/30/2016 NCUA Call Report data (select June/2016... it's on page 17 "Misc. Info" - here's the link):

# of Federally-Chartered CUs:                    3,679
# of Current FCU Members:                 55,433,285
# of Potential FCU Members:             978,012,080
         [under current rule]                            [978 million!]
% of Current Members to Potential             5.67%
                     FCU Members:

Which suggests 3 questions...

Tuesday, November 22, 2016

NCUA: Enterprise Risk Management...

Why does the NCUA Board need to "ACT" now and "ACT" decisively?

Because NCUA has created significant enterprise risk for the agency through its actions - and lack there of - over the last six years, endangering its staff, credit unions, and the future of the agency itself. NCUA's primary function under federal law is to assure the safety and soundness of credit unions and their member-citizens' funds.

1)  The absence of clear accountability is a safety and soundness issue at NCUA.
2)  The self-evident and self-confessed
 competency deficits in required staff skills and modern IT/analytical systems is a safety and soundness issue at NCUA.
3)  The repeated and egregious lack of transparency is a safety and soundness issue at the NCUA. 

The "enterprise" is at substantial risk. The reputation of NCUA has become a potential safety and soundness issue. 
The Board must...

NCUA At The Crossroads: As We Were Discussing...




Monday, November 21, 2016

Short Shelf Life At NCUA ?

Had an interesting comment question yesterday asking why NCUA might have a "short shelf life"?

Think that would be a great question to think about and might give firm reason for credit unions and the NCUA to "ACT" now and move forward aggressively with some sense of urgency... perhaps as if our industry and professional lives depend on it!

Here are some points to consider, certain you will have others:

1.  We have just elected a Republican President, Senate, and House, who have all committed to a smaller federal government - expect "gridlock" to end in terms of financial regulations and financial regulators.

2.  Secretary of the Treasury, under President George Bush, Hank Paulson in March, 2008 proposed a sweeping reform and consolidation of federal regulation and insurance of the U.S. financial services industry. (His "plans" were interrupted by the small matter of the collapse of our financial system that year.) NCUA was eliminated under the plan - "Blueprint for a Modernized Financial Regulatory Structure" [ here's the link].  Expect many of those same ideas and same people to resurface under the Trump administration. They have been "out of power" for eight years - no more!

3.  Congress will deal with financial services regulation early on, whether you call it Dodd-Frank, CFPB, Too-Big-To-Fail, the Federal Reserve, complexity/compliance... you get the drift.

4. NCUA has not exactly endeared itself to Congress over the last few years including the "infamous" House Financial Services Committee appearance last year by Chair Matz - something we will be a longtime in living down. Hope you know political people have long memories... expect to pay for the mistakes, unless we act decisively first!

5. The accelerating decline in the number of credit unions ( and community banks!) due to consolidation, economies of scale, regulatory burden, and technology. Some think we no longer need a multitude of independent - "answerable to no one" - federal agencies.  Another growing concern is over the "inadequacy" of the state regulatory systems to monitor very large state-chartered institutions. (See 1 & 2 above!)

6. NCUA does not appear - at this time - to have the the talent and skill sets to regulate and insure a credit union industry dominated by fewer and fewer large credit unions. The RBC rule-making fiasco of last year is all the prima facie evidence most folks would need to question depth and competency.

7.  NCUA is deficient in technological expertise - self-evident and self-admitted - and probably does not the have the long-range ability to attract and retain these highly demanded skill sets on a governmental pay scale. Outsourcing is possible, but when you end up outsourcing the key, critical functions of a government agency, it doesn't take long for folks to suggest "Why not outsource the whole thing"! (See regulatory consolidation above).

8) The agency continues to fail to act to clearly distinguish and differentiate NCUA as a "unique", cooperative regulatory system.  The potential is there, that opportunity exists, but there is no urgency, no leadership energy among senior staff, who either don't know what to do or simply lack any creative drive - "to set the bar, a higher standard" at NCUA (for their own survival!)

9)  No "peer pressure" - the FDIC, Fed, SEC, etc are very certain that the NCUA will not be the "surviving" entity under any Congressional regulatory consolidation plan.

10)  And did I mention...

Conflict Of Interest....?



Sunday, November 20, 2016

The NCUA... Redefining The Agency For The Future...

It's time to ACT!
Had some interesting comments over the last few days about the NCUA, the trade associations, and several of the problems confronting credit unions as we all stare out into an uncertain and challenging future. 

Even had one commenter seemingly willing to personally volunteer to "bell the Cat"! Some might wonder if such a volunteer is brave or foolhardy; since as the fable acknowledges, there can be "consequences". Haven't heard from any of the trades as yet, but I realize that they are very busy, perhaps in time...

As you might suspect, there was a strong vote of "no confidence" in the current version and prospects for the NCUA. Most folks do not believe the NCUA is the premier financial regulator in the Country, although about the same group believes the NCUA should strive to be so. 

What is really discouraging is that most folks
"Inside the box leadership?"
 believe that NCUA "doesn't have it in them" to be the premier regulator, but what is really damning is the belief that NCUA has no ambitions to be the best - that second tier, second class, second rate is good enough for the Agency.

             NCUA is "comfortable" as an "also ran".

If true, this has become a simple question of NCUA Board leadership...

Saturday, November 19, 2016

On Being Open-Minded and Transparent...

"We are both setting and raising the bar on transparency for a federal regulator."

"NCUA should conduct their operations in a wholly transparent manner by avoiding the "because I said so" mentality that seldom works with two year olds." [link]

The following federal financial regulatory agencies have operating advisory panels:

Federal Reserve Advisory Councils

a)  Community Advisory Council [link]

b)  Community Depository Institutions Advisory Council [link]

c)  Federal Advisory Council [link]

☞ FDIC  Advisory Committee on Community Banking [link]

 SEC  Securities Exchange Commission Investor Advisory Committee [link]

CFPB Consumer Bank Advisory Board and  Consumer Credit Union Advisory Board  [link]

NCUA Advisory Council...

Friday, November 18, 2016

The NCUA Budget Process: Part Last!....

Create the legacy!

Wouldn't it be exciting and invigorating to see the following announcement from Chairman Metsger on Monday:

As Chair, I have asked the following 12 people - representing all segments of the NCUA and the credit union community - to serve as a strategic advisory forum to discuss future opportunities and directions for the NCUA.

The first monthly forum will take place in January

2017 and your input as a credit union leader is encouraged and welcome. Summaries of the topics discussed and recommendations considered will be published immediately after each meeting.

The reports of the advisory forum will hopefully stimulate active industry-wide debate on enhancing the efficiency and effectiveness of the regulatory process.  And, will be used by the NCUA to help define and prioritize future agency operational objectives - and the specific time-lines and budgetary funding required to implement those objectives.

"In summary, we are providing more

information earlier in the process and giving
people multiple ways to provide input. We are both setting and raising the bar on transparency for a federal regulator."

Let's get started!   

Rick Metsger
Chair, NCUA

Mr. Metsger...

Thursday, November 17, 2016

The NCUA Budget Process: Part 10 ... Where Next?

So, enough of this year's NCUA budget process! 

(Say Amen!)

1) It was a nice gesture on behalf of the NCUA Board to ask for comments - but that is all it was "a nice gesture"!

2) Despite repeated claims, the NCUA budget is not an exercise in "zero based budgeting"; and in fact, is an exercise in standard incremental, "add-to-the-past" budgeting - with little evident prior thought given to the future needs of the agency and staff.

3)  The NCUA budget is primarily driven by personnel cost (about 80%) which is normal for a "service-type" organization. Personnel cost control is restrained by a 5-year union contract.

4) Technology lags noticeably at NCUA, probably because it threatens the status quo and careers of both NCUA management and staff. Technology will win out, the only question is how much pain and suffering on staff and credit unions will it take to overcome NCUA management's inertia - and lack of expertise - in taking the agency into that "brave new world"?  

5) All staff are at personal "job-risk" due to the lack of  thoughtful, "real world" strategic planning by management (and perhaps also by NTEU) for an inevitable future of fewer, larger CUs, automated ("virtual exams") and a drastically different set of required staff skills. 

6) There can never be an legitimate budget process at NCUA until the underlying issue of funding of the agency ("revenues") through the NCUSIF has been honestly and openly addressed.


The NCUA Budget Process: Part 9...

A budget should tie back to the strategic plan and reflect the costs required to achieve the goals and objectives specified in the strategic plan.


The NCUA Budget Process: Part 8...

We need to return to one key idea:

( so a wee bit late to ask for comments!)

Look at the message in the chart below! 

How should the NCUA and the National Treasury Employees' Union
(no to 47 eliminated examiners, no to more contracted services) address the harsh reality of a shrinking/consolidating credit union industry ? 

The harsh reality that cyber-technology ("automation") and analytical software ("Big data") can gather and analyze the safety and soundness of a credit union more thoroughly, more timely, and less expensively than most experienced examiners. (...and, do not travel, rent cars, nor stay in hotels!)  

The harsh reality that few of the current NCUA field staff are qualified with the skills to manage the near future regulatory requirements at the NCUA; and that outside "contracted services" providers may well be able to perform the new, more complex regulatory functions "quicker, better, and cheaper".

The harsh reality that over 80% of the current budget ($240 million - including salaries, benefits, and travel) is personnel related costs. And that $290 million 2016 budget is scheduled to rise to $313 million in just two years.

 "NCUA staff are the agency's most important asset..."

Chair Rick Metsger
NCUA Strategic Plan

OK, but all we see is wishful thinking in this budget! Which means those "most important assets" are effectively being...

Wednesday, November 16, 2016

The NCUA Budget Process: Part 7

NCUA Budget Proposal

We need to take a look at one other important budget document provided for review by the NCUA: The 2017 -2018 Budget Proposal (the"NBP"presentation made by Mr. Mark Treichel, Executive Director, and Mr. Rendell Jones, CFO to the last NCUA Board. [here's the link]. It's a "dog and pony" powerpoint so it won't take too much of your time.

The NBP runs forty three pages and presents much
As an alternative to the budget,
you could...
important information, which is supplemented by the greater detail in the 2017/2018 Line Item Budget Summary [here's that link]. But don't waste much time on that at this point  - regardless of your situation in life you have much better, more important things to things to do. (Must I repeat?: "Life is short, drink champagne!")

You do need to focus on and consider 
the first 8 Charts...

Tuesday, November 15, 2016

The NCUA Budget Process: Part 6...

Who's shelling out for this "budget"?

Q: Have you ever prepared a budget that had absolutely no mention of revenue at all?

If the goal of the NCUA and credit unions is to work towards "... setting and raising the bar for transparency at a federal agency." (to quote Chair Metsger); then certainly we must be accountable and competent in our budgeting - using generally accepted, professional standards.

The absence of any discussion of revenues in the
What did you say about revenue sources?
 NCUA budget does not measure up to professional accounting principles, nor sound business logic. 

And, NCUA avoids the critically important questions of the overhead transfer rate, the assessment levels of FCU regulatory fees (which are demonstrably slanted against state-chartered credit unions), as well as transparently dealing with the impact of recent multi-billion dollar legal settlements and the appropriateness of reserve levels.

'Ya know, "setting and raising the bar on transparency at a federal agency" is hard work...

The NCUA Budget Process: Part 5...

Digging deeper.
Yesterday's post provided a brief synopsis of the written responses [here's the link to all] presented to the NCUA Board concerning the Agency's proposed budget.  The limited number of comments - only a dozen in total - could signal that the comment process, while diplomatic, is basically a waste of NCUA's time and resources. A tempestuous teapot, much ado about little at all?

Nah, never happen.
Or perhaps credit unions are relying on their trade associations to represent their interests and present the case for budget reform on their behalf - "politically" much safer and economically far more efficient.

If so, it would appear that NAFCU was the hands-down winner [here's the link] in structuring a well-organized and succinct trade association comment letter. (Even "looks professional"!)

Take a look at the following two charts from Mr. Dan Berger's comment letter... 

Monday, November 14, 2016

The NCUA Budget Process: Part 4

The NCUA Board will vote to approve the budget on Thursday.  Time grows short to provide some input! Or perhaps not!

Not?  Well, one of the interesting quirks about the opportunity credit unions have been given to comment, is that the Agency has the ability to readily track the number of your inquiries and "click-thrus" on the budget documents and supporting information provided.

That's a "K" for credit unions!
Guess what? Nobody much is looking! Wonder what that means?  Wonder how Chair Metsger and Mr. McWatters feel about "putting their neck on the line" by inviting comments - y'know "build it and no one came"! Perhaps Ms. Matz was right all along in stating that credit unions really don't care about the NCUA budget - it's just an issue "ginned up" by the trade associations to keep the dues flowing!

Why bother if nobody really gives a rip?

Fantastical Typos...


"John Stumpf and Four Others Indicted into 
ABA Hall of Fame !"

Sunday, November 13, 2016

Field of Membership: The Cold Shoulder...

Consumer B-oink-ing !

"Giving a poor person a bank account makes as much sense as giving a hungry person a refrigerator."

We sure don't want to serve "those people"...