Should NCUA Create a Credit Union Advisory Board?

I am skeptical about whether a politically chosen advisory board is an effective venue for credit unions to influence NCUA. Both the Federal Reserve and CFPB have advisory boards in which credit unions are members.

Whether these forums are more than a public relations event is difficult to determine. Therefore, I thought listening to an actual proceeding of the FDIC’s Advisory Committee could be useful.

A Four-Hour Advisory Board Experience

On July 28, the FDIC held its semiannual meeting of its 18-person Advisory Committee on Community Banking. Established in 2009, the representatives are CEOs from stock, mutual and private community banking firms. Due to the Covid situation, the meeting was held virtually with video so anyone could watch. Normally the dialogue would be private.

The meeting began with the CEOs’ descriptions of the state of their institutions and local economies. Reports were from smaller communities in New Hampshire, North Carolina, Kentucky and Iowa, to name a few. These five-minute updates were impressive. These senior executives talked about internal responses to Covid shutdowns, the distribution of PPP loans, buildups of cash savings, requests for loan deferrals and other shared experiences in the current environment.

The CEOs were articulate and prepared. Their firms ranged in size from $100 million to just over $1 billion in assets. Three specifically mentioned credit union competition. The North Dakota CEO gave the example of a credit union making a $1 million commercial real estate loan for a property in foreclosure at a rate of 1%. “We can’t compete with that.”

Many spoke of margin compression from the declines in market rates. This revenue loss being partially offset by loan origination fees, especially mortgages, and gains on investment sales.

Each gave updates on their local economies: the loss of revenue from tourism, the prospects for good crop harvests, the decline from local unemployment peaks and one example of refinancing a loan to their local municipality thus saving the city over $500,000 in interest.

Several offered recent exam experiences, one with the new “remote” process. Comments on FDIC policy were suggested. For example, a request the agency keep a moratorium on new ILC banking charters for firms like Walmart.

All in all, these brief financial, economic and management summaries were thoughtful, detailed and eloquent testimonials about community bankers’ multiple roles in the current climate.

Then Two Hours of Agency Updates

The rest of the four-hour meeting was centered around FDIC briefings including:

  • An economic outlook with a focus on commercial real estate and agricultural sectors;
  • A report from a subcommittee on Minority Depository Policy;
  • Updates on deferral accounting changes mandated under the CARES act, the lowering of the bank leverage ratio requirement from 9% to 8%, loan appraisal deferrals and related call report revisions;
  • A CECL update by a FASB board member;
  • FDIC’s diversity and inclusion program information;
  • Changes in how the FDIC insurance fee would exempt CARES Act loans;
  • A description of the Rapid Prototyping Project. The goal is to make the current call report process obsolete by using the latest technology. There were 30 companies invited to provide concept papers, followed by a 90-day period to develop a demo, and another 90 days to prototype the new model.

Was the Advisory Board Example Instructive?

The most informative or “real” part of the day for me were the bankers’ conversations. The FDIC presentations were dry, general policy updates with little interaction. They elaborated on decisions already in place. They were staff briefings. There was little give and take. The two hours of staff slides were a useful reminder of how regulatory “burdens” do not lessen even in a pandemic.

My assessment was that the bankers were more in touch with the realities in their communities than what the FDIC presented. Each FDIC update, even the pandemic “accommodations,” ended with the same caveat: “subject to proper risk management.” Even though the CEOs had spent several hours demonstrating their management competencies, the FDIC’s focus was on more rules or reinterpretations of existing ones.

The proceedings were polite. Both sides  appreciated the event. But the impression I was left with was while the FDIC might hear, they do not listen. This was not a democratic or collaborative process.

I don’t believe this is a model for credit unions. For the NCUA has a different structure, oversees a unique financial design, and manages cooperative resources meant to benefit the industry.  To be a meaningful process, it would have to be collaborative in both design and outcomes.

However even if an advisory board were  just for show, a live virtual open meeting could still be an eye opener for viewers.

 

 

 

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