Category: NCUA

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Questions from Cicada Coop, a Life-long Credit Union Member

Yesterday I began a conversation with a bug I had not seen for 17 years. My cicada colleague is unusual in that he was also a credit union member. A real fan of co-ops. His whole family had joined two decades earlier; all 10,000 located at Wilson Lane.

The Credit Union NCUA Relationship in 2004

His first question upon this reincarnation was how were credit unions doing? Specifically, he wondered if the mutual relationship between his coops and NCUA had continued.

From his backpack he pulled the 2003 NCUA Annual Report and began to quote from it as a reminder of what intra-industry efforts looked like back then.

Among the items he showed are the following excerpts from the Report.

Budgeting and Efficiency

“Last year NCUA continued its emphasis on accountability within the agency’s budget process conducting its third Annual Public Forum and Budget Briefing resulting in stakeholders have a better understanding of the agency’s budget and operations. The efforts put forth . . . have resulted in a more effective, efficient federal agency.

Among the notable accomplishments achieved are a reduction in staffing levels from the all-time high of 1,049 employees in 2000 to the 2004 budget level of 963, the reallocation of resources which included closing of one regional office and relocating another at as savings of $27 million over the next ten years. These are important ongoing internal agency initiatives that will continue to have high priority in 2004 and beyond.” (Pg. 5)

Cost Control and Transparent Operations Are Key

“The 2003 budget was $887,500 less than the approved 2002 budget.” (Pg. 8)

Overhead Transfer Rate

“NCUA remains committed to increased transparency in operating the agency. . .First in November 2003 the NCUA Board overhauled its method of calculating and assessing the overhead transfer rate. Calculated annually the new method is more comprehensive. The formula has been expanded to take more factors into account, providing greater equity and accuracy in calculating and allocating costs.

Second, the NCUA Board held its third public budget briefing and encouraged public attendance and comment. This open budget process serves to underscore NCUA’s continued recognition the responsibility to share all material budgetary considerations with agency stakeholders.” (Pg. 9)

Strategic Leadership Summits

“Each January the Office of Strategic Program Support and Planning (OSPSP) plans and executes NCUA annual strategic leadership summit. . . OSPSP conducted several stakeholder panel discussions during the 2004 summit to gain insight from various perspectives on issues and concerns facing the industry. Panels included CEOs from small and mid-to-large credit unions, certified public accountants, credit union consultants, and third-party service providers.” (Pg. 18)

My Response

I told Cicada Coop all the examples he chose had taken a U-turn while he was away. As evidence I said a recent NCUA Chair had declared in congressional testimony that: “An independent regulator is not answerable to the entities it regulates.”

He did not believe there could have been such a turnabout. He cited other examples of mutuality such as the six consecutive dividends from the NCUSIF to credit unions from 1995 through 2000. So, I said, come on inside and I’ll show you the videos.

Tomorrow I will share these videos and what I believe caused this rupture. And then his family’s reaction to this changed environment.

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A Case Study of an Industry Collaborative Initiative

 Earlier this year I described a trifecta opportunity for credit unions.   The three challenges were:

  • Tapping the entrepreneurial interest of the current college generation;
  • Supporting new credit union charters to plant  seeds for future relevance and growth;
  • Providing leadership to prioritize opportunities for those left behind (DEI) due to historical inequalities.

An example combining all three elements was Gary Perez’s efforts as CEO of USC Credit Union to create a project to charter student led credit unions at the 107 historically black colleges and universities across the country.

Recently I found the following program that would seem to be an ideal way to meet all three opportunities.   And maybe jump start Gary’s efforts.  It reads as follows:

 Student Internship Program 

The OCDCU 2000 College Student Summer Internship Program was the most successful to date. The program creates partnerships between low-income designated and other credit unions (large or small) and college juniors and seniors to train and develop a pool of potential future credit union managers. The students selected are business, finance, or marketing majors. 

 With technical assistance grant stipends, the 2000 summer intern program matched 29 college student interns with 58 different credit unions. Stipends provided the interns totaled $72,500 in 2000 compared with $67,500 in 1999 for 27 students. 

Source:  pg. 16 NCUA 2000 Annual Report

 Wouldn’t a relaunch of this joint initiative now be a powerful signal of the credit union system’s responsiveness to today’s special challenges? Especially in an increasingly tight labor market?

 

 

 

 

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Should NCUA Be Helping with the Country’s Immigration Surge?

The unprecedented flow of persons seeking to enter the US in the Southwest is at very high levels. This is a situation  that concerns many people of goodwill.

Should NCUA leadership be seeking full time staff to go on temporary assignment to help out?

If confirmed that this volunteer recruitment effort is underway, the situation raises important questions. These include:

Who at NCUA approved this request and under what authority?

How does the effort assist the credit union system which funds all the agency’s activities?

If NCUA can spare these “volunteers” for months at a time, how critical is their role in the agency to begin with?

If this is a proper action, why is it being done with no transparency?

The Cooperative Way

Finally, if the situation is so urgent and just, why not ask credit unions to participate?

When Hurricane Katrina devastated New Orleans, the agency opened its office to volunteers and former employees to man telephone lines answering member calls and coordinate industry recovery efforts.

Few would turn away when asked to help one’s fellow human beings. But NCUA should follow the appropriate authority when asked to deploy its “independent” agency resources. More importantly, as a government agency such actions should be done with full public disclosure.

The Collaborative Advantage

On many occasions credit unions have  provided collaborative solutions to strengthen their system.  The resource sharing and mentoring programs as well as the credit union funded NCUSIF and CLF configurations are some examples of agency-industry joint efforts. Volunteer capital is a cooperative advantage and value.

Increasingly however, NCUA leaders have pursued unilateral actions without industry participation or, when asking for comments, do what was proposed despite substantial objections.

Individual volunteering is the American spirit at its finest, whether the Peace Corps, AmeriCorps, or thousands of non-profit and charitable endeavors.  It is an unfortunate precedent for leaders in an independent agency to privately promote an activity, apart from its mission.  And for senior leaders  to then solicit their employees to take part.

The agency must be transparent; this is not simply an internal matter.  For it deploys personnel hired and trained with credit union’s fund for activities unrelated to the agency’s purpose. NCUA is not a private business or organization, but a congressionally defined institution.

Moreover, should something go awry, NCUA employees should have the confidence their good intentions are known and supported by the industry they chose to serve.

There is a right way and a wrong way to request staff to volunteer no matter how worthy the cause. Doing so secretly impedes necessary, open discussion and could bring unintended consequences tarnishing positive intentions.

 

 

 

 

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Reader’s React to Posts

On NCUA’s 7-Year Investment at .90%

Where are the NCUA Capital Market Specialists when you need them? Did the NCUA shock test this $600 million investment in a +/- 100, 200, 300 bps environment?
For credit unions this is a required a first step. When I was a CEO, examiners forced my peers to sell long term investments at a loss after NEV shock tests. Appears such assessments are not applicable to the NCUA. This is not a smart investment in this phase of the economic recovery cycle. Who made this decision at Duke Street.? What is their ALM experience? Why is there no public discussion of this at the April Board meeting? Where is NCUA getting their investment advice?

Would the persons responsible lock up their personal savings at a rate of .90% fixed for seven years? Commonsense says absolutely not. So why lock up credit union’s collective savings this way?

Investing in treasuries is not rocket science. When this $600 million dollar launch crashes in value soon, it is credit unions that will pay the cost. What is the end game? This $600M will have a huge decline in value as rates move up in the coming months or years.

The NCUSIF has a backup plan in the NCUA. When the NCUA needs to raise more revenue, they play the A word…Assessments. This is why my CEO peers and I read NCUA as Not Credit Union Accountable.   Never  Shocked. Just Disappointed.   Stuart+Perlitsh

On Watermelon Oreos

Can I interest you in some Marshmallow Peeps Pepsi?  Esteban Camargo

 On Berkshire’s Annual Meeting

I grew up in Nebraska and have attended the annual conference in person.

The comment about two 90+ year-olds holding court, taking unscripted questions live, for over four hours is an example I have used several times during presentations to CU CEOs and board members. I have a great photo of 12,000 attendees in the downtown arena with Warren and Charlie sitting at a modest table on a makeshift stage.

After the first annual meeting I attended, I walked away with great appreciation for how Warren could take complex concepts and distill them down to a few key points and tell it with a story people can relate to. . .

The takeaway I see for credit union CEOs and board members  is as follows:

1) Financial services is a system of numbers and tradeoffs. It is imperative the board elevate and self-educate to a level of acumen that can appreciate not just the numbers, but the nuance of the numbers. It’s difficult to effectively govern otherwise and can lead to risk avoidance (rather than risk management), inefficient deployment of resources, and at its worst, an incorrect assessment of reality.

2) Financial services is a system of numbers and tradeoffs (Part II). It helps when the CEO has enough mastery of the numbers not to just explain them, but to teach their subtlety to an audience that has not worked in financial services or does not have a significant amount of their net worth tied up in a financial institution. If a CEO wants a role model, watching Warren work his craft is a great place to start.

3) When 1 and 2 listed above are not present, it leads to distrust among the parties. The CEO will over-simplify things to gain trust, but when a simple explanation won’t satisfy a complex problem, trust may be eroded.

4) When 1 and 2 listed above are present, greatness follows because attention is shifted to higher order items, built upon a foundation of trust and understanding.  Mike Higgins

 On Jim Blaine’s Inaugural Address

“Because I could never accept that in America those who had the least and knew the least should pay the most for financial services.”   Well said!

I’m planning to create a Wikiquotes page about cooperatives. Wikiquotes is a sister project of Wikipedia, that collects quotes from people and about topics. This is going into the page! Leo Sammallahti

On Rex Johnson, Player Coach

I read the Player-Coach article early this morning, which caused a bit of reminiscing about Rex. In 1978, fresh out of college and having moved from downstate Illinois to Elgin to find work in a period of high unemployment and high interest rates, I entered the HFC management training program. That is where my path intersected with A. Rex Johnson for the first time. As chronicled in your article, he worked his way up to District Manager at Household, a position responsible for approximately 10 branch offices in Illinois and Indiana. The Elgin branch was a stop in my training period in 1979 and in 1980, Rex promoted me to my first branch manager assignment. He would leave a short time later for the position with the state. Rex would always look at the glass as half full and despite the high interest rates charged, the exceptional delivery of customer service enabled this company to thrive for many years.

Fast forward to 1985 and a job opportunity for a lending supervisor position was posted at what today is Healthcare Associates Credit Union. I applied and received an interview and thoroughly prepared for that. As we began the interview, Dan Vaughan, the general manager of the credit union was very casual and asking more questions about my personal interests than professional qualifications. Possibly half-way through the interview it became apparent that the job was mine if I wanted it. This puzzled me as beyond a resume, he didn’t know me from Adam.

He went on to tell me that he too had been a branch manager at HFC and worked for Rex. Positive feedback from a person who would become one of the greatest influencers in the credit union industry provide the break that brought me to our industry 36 years ago.

The first time I heard Rex speak to a large credit union audience was at the Illinois Credit Union League convention, possibly in 1985. He gave the same message about lending that we constantly heard at HFC, except now we had the advantage of extremely competitive rates and were the good guys, not a lender of last resort. Over the years it was always enjoyable to listen to his presentations and his message would serve as reminders of the block and tackling steps we need to consistently perform to build strong and lasting relationships with our members. I’ve done my best to teach people throughout my career, but nobody did it like Rex Johnson, with his charisma and passion that was always genuine.

Thanks for reminding people of the journey and impact one driven and good man has had on our entire industry.       Jim Dean, CEO, Affinity Credit Union

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Friday’s NCUSIF Fact

From the February 28, 2021 NCUSIF financial statement:

Investments

One T-note purchase for $600 million on February 15 with a fixed yield of  .90% for seven years.

This investment extended the NCUSIF’s average weighted duration from 1,184  to 1,243 days, or 3.45 years.

Would your CFO make a fixed-rate seven-year investment at this phase of the economic cycle for your credit union?  What would your examiner say?

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The NCUA Board’s Actions Positioning the NCUSIF for the Future

The NCUSIF’s 1984 Annual Report describes the founding actions positioning credit union’s Fund and the cooperative system for the future.

“Between July and October 1984, the NCUA board considered at great lengths how to implement the deposit plan.  Every effort was made to listen to credit unions and their representatives,  Whether by phone, letter or in person, communications were continuous, spirited and open. Because of this input, a very workable plan for all was reached when the board adopted final rules at its October 9, 1984 meeting to implement the capitalization legislation.

First, the board waived the entire 1985 insurance premium.  Second, it ordered the distribution of $81 million in Fund equity.  This amount constitutes the Fund’s equity in excess of the 1.3% fund equity insured shares ratio the board established for the Fund, once the 1% deposit was received.   Because of these actions, credit unions will only have to transfer 85% to 90% of their initial deposit obligation to the Fund yet it can carry the full 1% asset on their balance sheets.

(Editor’s note:  credit unions transferred only .89% of insured shares and were credited with 1%-the Fund’s first dividend)

Because of this legislative achievement by the credit union movement and the regulatory approach taken to implement it, the Fund contains some very advantageous structural improvements:

  • The insurance fund will be fully capitalized at all times;
  • Fund growth will automatically parallel credit union growth;
  • Congressional concern about the Fund’s adequacy and the need to build public confidence in it will likely lessen. Future legislation will probably focus on the FDIC and FSLIC (which happened often);
  • The numerous operating options within the new deposit plan framework provide future flexibility for credit unions and for the Fund;
  • Credit unions will have a direct financial stake in the operation of their Fund.

In 14 years, members of federally insured credit unions have gone from the least well protected depositors in financial institutions to be the best protected.”

Source: National Credit Union Share Insurance Fund 1984 Annual Report, pages 6 and 7.

 

 

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Jim Blaine’s “Inaugural” Address

As the CEO of America’s second largest credit union for 37 years, Jim Blaine had the unusual skill of translating simple cooperative concepts into profoundly valuable benefits for members.

Every member received the same rate for the same kind of loan.  Believing home ownership was vital to members’ financial security, he designed a 100%, non-conforming first real estate loan for any member with a simple explanation: “Why compete with the government?” (Fannie/Freddie conforming products)

He railed against FICO-determined lending decisions and risk-based loan pricing. This early use of “artificial intelligence” offended his belief in the uniqueness of each person.  Character and judgment, not computer algorithms, should be the basis for granting credit to members.

Words Matter

In addition to steering State Employees North Carolina Credit Union, Jim was a wordsmith.  His blog, and his talks, were audacious, controversial, fun to read and based on core principles.  “Sometimes wrong, but never in doubt” was his tagline. His writing style and graphics were intended so that a reader immediately got the message.

He understood that a leader’s influence was in direct proportion to one’s ability to communicate. To the entire crowd: fellow-believers, opponents, the uninterested and the unwashed, meaning those who corrupted cooperative values for self-interest.

Some of his most scathing and widely read observations were about NCUA, a government agency which believed that its core purpose was to tell credit unions what to do, or not do.  Examiners would constantly challenge Jim’s traditional implementation of credit union purpose.  He would use the agency’s own words and facts to demonstrate the lunacy of their demands.   When he dared to break the code of silence NCUA imposed on examiner ratings and publish his credit union’s score, the regulator wreaked vengeance on the entire North Carolina state-chartered system.

Jim’s most enduring gift to the “movement” may be his writings.  As Churchill stated: “Words are the only thing that lasts forever.”

The Course to Be Pursued

In an inaugural address more than 157 years ago, the speaker gave “a statement of a course to be pursued.” That course concluded with this purpose:  “with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds. . .to do all which may achieve and cherish a just and a lasting peace among ourselves. . .”

Lincoln used 722 words in 1864.  Jim’s 503 words address the legacy Lincoln hoped the civil war would resolve.

Jim speaks to the goal of a “lasting peace among ourselves” based on economic fairness and justice, core principles of the cooperative ideal. Diversity, equity, and inclusiveness are matters of the heart, much more than policy; something to practice in your life, rather than just preach.

Jim followed his own drummer when leading his credit union.  I believe these latest words will inspire all and even provoke some to answer his closing call for individual acts of rebellion!

Blaine’s “Inaugural” Address

(March 18, 2021)

“I am truly grateful to the African American Credit Union Coalition for this honor. The organization is remarkably successful and on the rise! I have known many of its leaders for a lifetime and have often sought, and even heeded, their advice! We shared a common bond – a belief in credit unions.

My life has been centered around my family, my wife Jean, and credit unions. Why credit unions? Because I could never accept that in America those who had the least and knew the least should pay the most for financial services. I believe that credit unions were created to correct that injustice. In the words of Thomas Paine – a true revolutionary in all respects – “I have always objected to wealth achieved through the misery and misfortune of others”.

That economic injustice continues to thrive in our financial system today. Credit unions remain the alternative, the best hope, the answer.

We all confront an uncertain future, and many folks would like to rewrite the past. You and I know we cannot change the past. But if we have credit union leaders with integrity, courage and character; we most certainly can reshape the future…but changing the future is very hard work. Arthur Ashe, the great American tennis player, described the credit union leaders we need. Ashe said: “True leadership is not the urge to surpass all others at whatever cost, true leadership is the urge to serve all others at whatever cost.”

One  word of caution as we look to the future and choose our new leaders; let’s make sure that diversity, equity, and inclusion is not a false guide, a false prophet. Can we really tell how diverse a credit union is by looking at the faces of our boards and leaders? Choosing our leaders by their race, their gender or their age is the old way – more of the same. We need a new way for credit unions.

And, the new way is to judge people not by how they look, but by how they think. As a famous preacher – I believe his name was King – said over fifty years ago: “Hopefully my children will be judged by the content of their character.”  Yes, let’s truly diversify and choose leaders based upon the content of their character. That is a more difficult, complex task, but our future depends upon it.

By the way, if you want to get a jump on reshaping the future, try starting a little personal revolution of your own. Next time you are filling out a form and come to the question of “Race?”, drop down to “Other” and write “Human”. When you reach the ethnicity question, drop down to “Other” and write “American”. And of course when you reach the question on “Sex”, drop down to “Other” and simply write in “Yes!”….and the world will begin to change!

Onward and upward – for all!… With the African American Credit Union Coalition leading the way!

Thank you again for this honor.”

 

 

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Redesigning the NCUSIF: The Cooperative Way to “Finish the Job”

On Feb 8, 1984, NCUA Chair Ed Callahan gave his GAC keynote, an annual tradition.  He started by describing the state of the industry with one word: “fantastic”.

He acknowledged credit unions’ success in meeting the challenges of the previous two years: implementing deregulation and expanding credit union access across the country.

But there was one more structural change necessary to complete a sound cooperative system-redesigning the NCUSIF’s premium based funding.

The proposed change, depositing 1% of insured savings for continual underwriting, was recommended in a Report to Congress dated April 1983, Credit Union Share Insurance.

The Report’s  seven sections examined the history of cooperative insurance, risk rating, expanding insurance coverage, merging the three federal funds, and revisions to the current NCUSIF system.  An 8-page appendix listed over 50  credit union commenters, including leagues, state regulators, credit unions and the state cooperative insurance funds.

Why Listen to the Speech Today ?

This eleven-minute excerpt from the 14-minute recording is a critical moment in NCUA and credit union history.  It began a joint legislative effort to restructure the NCUSIF on cooperative principles, a design that has sustained for four decades. In these same years, the premium-based FSLIC failed, merging with the FDIC. The FDIC has had multiple periods of negative equity and still struggles today to find an adequate financial model.

The address is more than history. Ed’s “finish the job” challenge is a prime example of regulator industry collaboration. These mutual connections were empowering. It is a vision of leadership guided by “power-with,” not “power-over.”

Change was made through honest, open discussion seeking “a better way.” Over 2,000 comments were received to the proposals in the April 1983 study in which all parties had a say.  Chairman Callahan’s approach was based on “relational power” not assumed legal authority.  He was committed to teaming with credit unions-“we, not me.”  The cooperative way.

This excerpt is available at:  https://youtu.be/BmxvX7wQxgg 

I believe you will find this talk as enlivening and informative today, as it was years ago.

 

 

 

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An Open Secret: NCUA, Oxymorons and Merger Truths

An oxymoron is a figure of speech in which two seemingly contradictory terms are used together.  Sometimes the intent is literary, as in “deafening silence.”  Sometimes the purpose is  ironic juxtaposition—“postal service” or “jumbo shrimp” –to highlight conflicting concepts.

I propose a new example Truth in Mergers.  This is a 25-page NCUA publication from May 2014. The subtitle: A guide for merging credit unions.

This document was prepared by NCUA’s Office of Small Credit Union Initiatives (OSCUI). The preface lists three purposes:

■ Understand trends in credit union mergers.

■ Determine when a merger is in (a credit union’s) best interest or, in the worst case, necessary to continue operations.

■ Negotiate a merger agreement that best serves the merging credit union’s interests.

OSCUI’s mission statement read: We support the success of small credit unions … (and) recognize the unique role small, low-income designated and new credit unions play in the lives of their members and communities. We are committed to helping these credit unions not only survive but thrive.

 The “truth” is that the brochure was to facilitate the demise of smaller credit unions.

 Oxymorons can assist the reader to clarify NCUA’s doublespeak. After each of the following verbatim excerpts, I have provided this figure of speech to aid in interpretation.

Statements from “Truth in Mergers”

  • Mergers between credit unions are commonplace in the industry today. (old news)
  • like all businesses and institutions, mergers can be successful or unsuccessful. (even odds)
  • NCUA does not endorse mergers. (seriously funny)
  • mergers undertaken proactively by credit unions in sound financial condition have better outcomes for the credit unions involved and their members. (alone together)
  • many credit unions wait until they are in a troubled financial position before exploring the option to merge. (definite possibility)
  • Weak Financial Condition Drives Most Credit Union Mergers (deliberate mistakes)
  • A merger can also provide direct benefits to credit union members, including lower cost of services, lower loan rates, and higher dividends. These benefits are significant, immediate, and persistent. (true lies)
  • Negotiating the terms of the merger contract is one way a merging credit union can realize the greatest benefits of the transaction. (bittersweet)
  • OSCUI’s study of merger packages also demonstrated a clear link between a merging credit union’s financial strength and its ability to negotiate advantageously with the continuing credit union. (strength in weakness)
  • Best Practices: Shop around for the best fit. Merging credit unions should seek out and evaluate multiple potential partners and critically evaluate major issues, such as: organizational culture, mission statements, and respective memberships. (act naturally)
  • Include a merger in the strategic planning process. Credit unions are encouraged to consider the impact of a merger as part of the strategic planning process. (definite possibility)
  • Develop a succession plan for executives and board members. Avoid letting the board and the CEO grow old together. (open secret)
  • Merger contracts can be negotiated to ensure that the merging credit union’s members, staff, and community continue to be served. (true myth)
  • Take measures to enforce the merger agreement. How can merger agreement provisions be enforced when one party to the agreement no longer exists?

NCUA’s Office of General Counsel suggests that a merging credit union name in the contract the third-party beneficiaries with standing to enforce the contract. For example, if the continuing credit union agrees to keep a branch open for at least one year, the agreement would note that the members of the discontinuing credit union are beneficiaries with standing. Because these matters would fall under state contract law, the wording should be state specific. (clearly confused)

The Almost Final Word

“This brochure has been prepared by NCUA’s Office of Small Credit Union Initiatives (OSCUI) as a resource to help credit unions.

Truth

The truth: this Office of Small Credit Union’s initiative was intended to phase out small credit unions.  Those with problems-for sure.  Those in sound financial condition-in due course.

And Consequences

This  “small credit union” endeavor gave the green light for all credit unions to seek merger opportunities.  No matter the size, circumstance, proximity or business logic.  It began an open season for self-dealing. CEO’s saw the opportunities to cash out at their retirement; long standing member loyalties were  squandered, and a binge of back room deals by leaders of sound local credit unions was officially sanctioned.

The challenge for Chairman Harper and the board: is there a CURE for this official document issued while he was senior policy advisor to Chairman Matz?

To keep mergers in perspective we give the last word to capitalist Henry Ford:  “A business that makes nothing but money is a poor business.”

 

 

 

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How Another Agency Reviews Its Performance in Failures

A vital leadership skill for persons and organizations is the ability to learn from mistakes. Ignoring failures can lead to coverups and ultimately the loss of personal integrity and institutional purpose.

At the March NCUA board meeting, all three members, including Chairman Harper, publicly supported a “look back” to understand the Corporate crisis and lessons that might be gained. This could be an invaluable effort if truly open, independent and expert.

Last week NCUA conserved Edinburg Teachers CU with a net worth over 20%, without explanation. If the problems are not quantitative (financial) but qualitative (internal fraud, governance failures) is this a situation examiners should have discovered?

Self-examination is difficult in the best of circumstances. In some respects, it is contrary to the ethos of a regulatory enterprise which itself is charged with ensuring proper conduct. To admit its own processes and judgments may be less than satisfactory, could harm the agency’s reputation. Better to stonewall and let bygones be gone.

Look Backs at An Agency

The FDIC’s success in assuring the public that insured deposits are indeed safe does not rest on its fund balance. The FDIC resources are far less than 1% of the banking assets it insures. Rather it depends on public confidence in the FDIC’s ability to resolve problems-whether caused by circumstances within insured banks or from its own supervisory shortcomings.

One key to this continuous improvement process is FDIC’s public analysis of failed banks.

The most recent was posted on Friday, March 26, the Failed Bank Review, Almena State Bank, Almena, Kansas.

The 5-page report on the October 2020 closure of Almena State bank shows a loss of $18 million or 27% of the bank’s $69 million total assets.

The IG’s review is to determine “whether the subject bank failure warrants an In-Depth Review.”

This initial assessment analyzes “key documents related to the bank’s failure, including the Division of Risk Management Supervision’s (RMS) Supervisory History, the Division of Resolutions and Receiverships’ (DRR) Failing Bank Case, and examination and visitation reports dated 2016, 2017, 2018, 2019 and 2020.4”

The Analysis

Report sections include Causes of Failure and listings of all FDIC supervisory contacts. The review process includes multiple considerations:

“The OIG considers four factors to determine whether unusual circumstances warrant further review. These include: (1) the magnitude and significance of the loss to the DIF in relation to the total assets of the failed institution; (2) the extent to which the FDIC’s supervision identified and effectively addressed the issues that led to the bank’s failure or the loss to the DIF; (3) indicators of fraudulent activity that significantly contributed to the loss to the DIF; and (4) other relevant conditions or circumstances that significantly contributed to the bank’s failure or the loss to the DIF.”

The factor most relevant for credit unions is (2), cases where “the OIG identifies significant programmatic weaknesses in the FDIC’s supervision, to determine if there is a need for follow-up work and the appropriate course of action.”

In the Almena case “we found that the FDIC’s supervision identified and effectively addressed the issues that led to the bank’s failure and the loss to the DIF.”

What NCUA Can Learn

As valuable as an analysis of the corporate resolution efforts will be, there are more immediate lessons NCUA might draw from FDIC’s ongoing “after-action reports.” Improvements include:

  1. Publish full details in all reports, including exam contacts. If critical facts are kept from the public, it is the same as if no assessment was done.
  2. Set up an independent process. NCUA’s OIG is dependent on the agency and personnel whose actions it is supposed to review.
  3. Include exam and supervision findings in the report (factor 2 above)- what went right and what mistakes occurred?  For example, NCUA’s IG review of Chairman McWatters’ travel expenses and his verbal explanations had more facts than the agency provided in its loss review of CBS Employees FCU. That loss exceeded $40 million, according to one newspaper article, and extended over decades of NCUA examinations.
  4. Evaluate how reviews and audits are done. NCUA OIG contracts much of its work to outside auditors. This process, while seemingly objective, is rarely expert and relies on the cooperation of those whose responsibilities are being assessed.
  5. Be timely in reporting. Late, after the fact analysis, may not change  current performance. Conservatorships often do not return control to members but are quietly ended in private sales. Meantime all members and the public are in the dark.

Maintaining public confidence requires leaders who acknowledge mistakes. Credit unions pay the bills for regulatory short comings. Today it is too easy to expense away failures and avoid public questions. In the end, this will only lead to further errors, misjudgments and greater losses.

Board leadership is required if  NCUA self-assessment is to be an agency priority. This can also be a chance to identify staff with the capability for this institutional self-examination.