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Two Cooperative Webinars-No Charge

Both are on April 13, but at different times.

I. Rochdale & The Early Co-operative Movement
 (from: National Farmers Union)
Description: Working People and Business Owners. Weavers and Socialists. Democracy Activists and Abolitionists. Over 170 years ago, a small group of people founded a humble grocery co-op in the North of England with an ambitious vision for a better world. Building on earlier experiments in co-operative enterprise, their ideas soon spread around the world, complementing local struggles, traditions, practices of mutual aid to help inspire what became an international movement for economic democracy.

What became known as the Rochdale Principles were taken up by groups such as the National Farmers Union, forming the basis for organizing successful agricultural co-ops, and other organizations focused on their adaptation to consumer, worker and other co-operative models. In this webinar, we will discuss the origins of the Rochdale Society of Equitable Pioneers, the challenges that they were trying to address, and how their legacy remains relevant today.

Submit any questions to: elindberg@nfudc.orgDate Time: Apr 13, 2021 02:00 PM Eastern Time (US and Canada)

II.  Cooperative Board Self Evaluation
(from: UW Center for Cooperatives: Fostering critical thinking and understanding about cooperatives.)

Description: Board evaluations are a critical component of maintaining a healthy, functioning board of directors, however they often fall to the backburner. This session will explore why and how to conduct board evaluations. It will also explain different methods for conducting board evaluations and their respective advantages and disadvantages.

Submit any questions to: mawebster@wisc.eduDate Time: Apr 13, 2021 10:30 AM Central Time (US and Canada)

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Voting: “The Most Hallowed Act in a Democracy”

A vital aspect of cooperative design is democratic member ownership.   Each member has one vote, regardless of share or borrowing relationships; proxies are not allowed for federal charters. This governance and accountability dynamic is both a moral and an organizational imperative.

Democracy is not merely a set of bylaws, or regulations or another organizing concept.  Rather it is the interactions developed between leaders and their constituents. Member involvement is more than a democratic cooperative value; it is the essential good will on which all credit unions rely replacing startup capital from the beginning.

Voting is the practice that enshrines and enables democratic organizations to legitimize leaders’ decisions.

Voting is Front Page Today

Voting is a front-page story across the country today. State legislatures have initiated changes to restrict voting access in response to the Big Lie of a stolen 2020 Presidential election.  Last week the spotlight turned to Georgia where the governor signed a law that would  prevent water being given to voters standing in line.

Public outrage has grown as evidence suggests that a purpose is to limit voting access in specific segments of the community.

The CEO’s  of Delta Airlines and Coca Cola, whose world headquarters are in Georgia, published strong statements opposing efforts to roll back voting opportunity.

Darren Walker the CEO of the Ford Foundation on NPR explained this change in the traditional low profile corporate leaders prefer on matters of public controversy.

“Voting is the most hallowed, important and sacred act in a democracy that its citizens exercise.”  He continued: “They (the two CEO’s) stood up when it mattered. We hope we can mobilize courageous CEO’s and companies across America willing to stand for American values.”

The State of Member Voting in Credit Unions

There are two occasions when members exercise their democratic role by voting:

  1. The election of directors at the required annual meeting of members;
  2. The voluntary merger of their credit union with another.

I think in both instances the vast majority of credit union practice is not “democratic” in any meaningful sense of the term. Some failures are the result of poor organizational habits, others by deliberate design.

The Members’ Annual Meeting

Recently I received the required Notice of the annual meeting from my credit union. It read in part:

Here’s the good news about our Annual meeting: There’s nothing you need to do. . .sharing this (Notice) is a legal requirement. . .Questions will not be taken during the meeting. . .there is no new business to discuss. . . only matter requiring a vote of members is approval of the 2020 Annual Meeting minutes. . .directors nominated (3)will be approved by acclamation of the Board. . .And this closing comment: We’re in this together. . .Our commitment to improving our members’ experience remains at the heart of what we do.   Signed:  President/CEO

This is not an invitation to participate, vote or become better informed about the cooperative the members allegedly own.  Instead, members should stand aside. Even the required meeting notice is portrayed as just a legal disclosure, like the rate on a loan or savings account.

The problem is deeper than this caricature of democratic governance.  The fundamental strength of credit unions is their member relationship. Member loyalty, initially via a common bond, and subsequently, lifelong patronage, created the credit union that exists today.

Sustaining these core relationships is essential for credit union success.

Members instinctively understand that the cooperative model is supposed to be different even if they cannot provide a precise legal distinction.  Treating members just like customers of a bank forfeits the most important advantage of credit unions in a market economy: the user and owner are one and the same.

Some credit unions use the annual meeting as a daylong opportunity to go beyond the legal formalities by providing workshops on member financial issues.  Sometimes the event is capped by a meal or with an outside speaker to celebrate the success of past year.

If credit union leaders fail to respect their member-owners’ role in this annual event, will members respond when leaders ask them to stand up for an issue needing their support?

Voting in Mergers: A Case Study

All voluntary mergers of sound credit unions require a majority of members voting to be approved.  This critical requirement is often treated as an administrative exercise with boards routinely encouraging members to sign off on the enclosed ballot.  Rarely do vote totals exceed single digits in this required member approval to give up a charter.

The merger Special Meeting Notice frequently lacks any specific data for members to compare their current situation with future promises. The reasons cited are general: “an expanded network of branches,” “improved operational efficiency,” “ the possibility of better rates on loans and shares,” and “we believe we should provide even better service due to additional investments in talent, technology and new products.”

The above are the verbatim explanations in a 2020 member merger Notice.  The vote in this merger, as certified by the Board Chair and Secretary, was 32,494 in favor and 0 opposed.  NCUA’s Director of Supervision for the Western Region acknowledged receipt of this certification and formally approved the combination effective June 1, 2020.

This merger of the $867 million Andigo Credit Union into Consumers Cooperative gave the members’ collective reserve of $107 million (12% net worth) to the continuing credit union.  No member dividend; only  vague promises.

However, Andigo’s senior managers were all given continued employment contracts from two to five years. Their compensation over and above what they were earning includes:

CEO: $226K in early payouts of deferred compensation plus $357K in higher bonus;CFO:  $150K higher; CLO: $165K higher; COO: $167K higher: VP Business Services: $74K higher.

This façade of members’ having voted approval is a perversion of democracy.  The members were provided no reasons supported by data.  No plan.  The process is ripe with conflict-of-interest.  It is an abdication by those with fiduciary responsibility covering up blatant self-dealing.  A scheme of enrichment and a moral swamp blessed by NCUA.

A Challenge to the Integrity of the Cooperative System

Every institution, every system, every country that follows a democratic model faces the challenge of constant renewal.  Democracy at any level of society is not self-perpetuating.  Leaders and circumstances change. Commitment to self-rule requires constant practice and vigilance.

The ever-present temptation for those in authority to exploit their current position for self-advantage is a facet of human character.  A credit union’s legacy bequeathed through generations of member loyalty is wiped out in an instant by self-serving leadership.

Two decades ago, the charlatans of Wall Street were proclaiming the need for credit unions to convert to mutual, and possibly, bank charters.  They asserted the credit union model was an anchor slowing growth and opportunity.  Almost three dozen credit unions took the bait.  Today, only one survives as a mutual.

Two outspoken credit union CEO’s led the fight against these false prophets of doom.  Bucky Sebastian and Jim Blaine did not win every fight; they were even sued for their cooperative gallantry.  But they had the courage to speak out and act when others were reluctant to challenge peer CEO’s.

Their efforts emboldened others who wanted to do the right thing.  However, the reality then is the same now. “The incentive today for corporate leaders in America discourages courage,” explained Darren Walker in his NPR interview on the reluctance of business CEO’s to speak out.

Next Steps

To address these patterns of democratic failure will require CEO’s, directors and leaders to assess their own practices of member governance.  Is the annual meeting just a perfunctory chore or is it a chance to renew and honor the member-owners’ role?

Mergers should be based on facts and logic with a documented plan, not rhetoric and vacuous future promises.  Every other area of credit union oversight needing regulatory approval (alternative capital, derivative authority, FOM changes, et al) requires more documentation than the decision to give up a sound charter via merger.

The century-long evolution of the cooperative credit union system in the midst of an economy driven by competition and private ownership is a remarkable accomplishment. To paraphrase Albert Einstein when asked about religious belief, “it is not that one thing is a miracle but that the whole thing is a miracle.”

To see this miracle of human and community enterprise crumble piece by piece through self-destruction is a tragedy.  One that only today’s leaders can reverse.

 

 

 

 

 

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Timeless Wisdom: Why Dual-Chartering

“I think if you took the pulse of credit unions today you would discover two feelings: worry over the growing authority of NCUA; and a desire for more flexibility than now exists under the charter options. . . The best remedy to this climate is a vigorous dual-chartering system, that is both a vibrant federal option and a vibrant state-chartering, non-federal share insurance. Danger grows if there is only one option. Such a climate breeds bureaucracy and lazy thinking.”

Ed Callahan, Callahan Report, May 2000

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Universities are Hotbeds for Startups

In a February 28, 2021 article Forbes highlighted the growing number of business startup programs at colleges around the country.

“Gen Z grew up in an era when entrepreneurs were put on pedestals, and business leaders like Elon Musk and Jeff Bezos hold a disproportionate mindshare of the U.S. public. Entrepreneurs have a new prestige factor.”

“Entrepreneurship is an unusual discipline, in that there is no set path for creating a successful company. The competitive landscape changes so fast that it’s tough to study, learning to be an entrepreneur is very much about learning by doing.”

Learning by Doing

The story stated there are more than 250 university startup programs around the country. To determine whether a school offers a good environment for “learning by doing” the article cited a raking of the Top 20 Entrepreneurship Competitions by the Times of Entrepreneurship.

The New Venture Competition (NVC) at the George Washington University in DC is ranked the 3rd largest student enterprise program in the country.

The 466 participants this year were the most in school history. The 12 final teams were selected by 150 judges from all over the world.

These 12 are divided into three tracks of four teams each-Tech, New and Social ventures.

On April 15, at 6:30 pm they will compete for $500,000 cash and in-kind awards at the annual NVC Award Show.

You can register to watch live here: RSVP to get the live stream link

Why Watch?

The live business presentations are well honed, documented and excellent examples of “elevator pitches.”

The business passion and skills of these students is inspiring.

Some of the ideas would seem to align well with credit union purpose. For example, this is one finalist in the social venture category:

P.E.E.C.E. Homes

P.E.E.C.E. Homes is a real estate venture determined to supply affordable, energy-efficient homes for underserved communities in Baltimore City.

Team: Brookklin Brown (CPS MPS ’22), Marylynn Jones

Look in Your Area

Check the list of the top 20 or look for a similar college/university  initiative in your area. Then reach out to see if there is a role for a credit union.

Some call this the entrepreneurial generation; others see this as reaffirming the American spirit. There might even be a credit union startup inside one of these higher education business incubators.

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NCUA Board Issues RFP Seeking to Enhance Agency Funding Options

As credit unions increasingly challenge NCUA’s funding from the overhead transfer of expenses (OTR) to the NCUSIF, and the record buildup of cash (over $110 million) in the operating fund, the Board approved an unprecedented Request for Proposal (RFP).

Chairman Harper said the board’s unanimous support is an “innovative response” to credit unions’ concerns over ever increasing agency operating costs. “We need creative ways to meet our growing financial responsibilities. This RFP also grew out of suggestions by credit unions themselves.”

Vice Chairman Hauptman, the newest board member, was equally supportive of the initiative to bring private sector “best practices” to the agency.

Building Naming Rights

Hauptman specifically singled out the idea of selling naming rights to the Agency’s Alexandria head office. The concept was raised by PenFed during the agency’s recent approval of their 21st merger. The nation’s third largest credit union had been seeking a building in the DC area on which to display its brand. The proposed wording: PenFed Tower with the tag line, Anyone Can Join. Their initial offer was for five years with a yearly fee of $5 million. The amount was coincidentally the same as the ONES office’s annual budget. (ONES: Office of National Examination and Supervision)

Educating CURE (Credit Union Resources and Expansion)

State Employees Credit Union NC had earlier met with the director of NCUA’s CURE concerning the disappearance of small credit unions and lack of new charters. “Without these smaller institutions the largest credit unions will not survive,” said Mike Lord, SECU’s CEO. “Our foundation normally limits its contributions to North Carolina projects. We offered to fund 100% of the tuition for every CURE employee to complete the Credit Union Development Educator (CUDE) program. Once CURE staff understand how credit unions are conceived, we think a wave of de novo charters will follow.”

Sponsorship of Monthly Board Meetings

To provide upgraded video technology for board meetings, the RFP also seeks interest in sponsoring the Board’s monthly open board meetings. The caveat is that messages cannot be a narrow promotion for a single credit union.

Any messages must have the character of a “public service announcement, like those on NPR,” said the Director of NCUA’s office and external and public affairs (OEPA). For example, a promotion for “better banking with XYZ Credit Union” would not be permitted. Whereas Navy FCU’s, Our Members Are Our Mission, would be acceptable.

Naming the Chairman’s Office

To avoid future public relation embarrassments when new Chairman furnish their assigned office, SchoolsFirst CEO has offered to endow an office renovation fund in perpetuity. The CEO gave two reasons for the credit union’s munificence. “I know what it’s like working in DC under attack from all sides. Plus, our credit union is thankful for the $360 million in additional capital from our merger with Schools Financial CU in 2020. I think it is important to show a little gratitude for NCUA’s generosity with Schools Financial member’s accumulated wealth.”

Publication Sponsorships

One of the agency’s most used publications is Truth in Mergers. Several credit unions expressed strong interest in underwriting future editions. Infinity FCU’s request to sponsor was deemed premature as their merger with Deere has yet to be approved.

However, the Director of Supervision for NCUA’s Western Region suggested the update be named for Andigo Credit Union. Their members voted 32,494 to 0 to merge with Consumers Cooperative Credit Union on April 9, 2020. Consumers added over $100 million in reserves from this unanimous member vote. “They could easily pay 1% of this added capital for endorsing this indispensable agency guidance,” the Director suggested.

Internal Staff

Agency staff involved in drafting the RFP volunteered other ideas for “naming” dedicated spaces.

For example, the Director of Examination and Insurance (OEI) suggested the rooms where NCUA examiners are provided on-going training be named after a former NCUA examiner, Edward Rostohar. As an NCUA employee Rostohar was so well-schooled that, for two decades as CEO of CBS Employees FCU, he went about a $42 million embezzlement no other examiners were able to detect.

Another NCUA staff recommended approaching CUNA Mutual. The company recently acquired Assurant’s Global Prearranged Funeral and Final Expense Business. Staff thought this new business’s purpose aligned perfectly with NCUA’s Asset Management Center (AMC) which disposes of failed credit unions. CUNA Mutual’s promotional support would not only reduce the cost of future liquidations but also offer members of failed credit unions a unique cooperative end-of-life burial option.

Next Steps

Once published in the Federal Resister, comments will be accepted for a 60-day period.

The Agency emphasized the urgency of receiving as many responses as possible before this year’s budget cycle begins.

Chairman Harper was enthusiastic about this innovative effort: “This is a unique opportunity for the cooperative community to increase their support of NCUA. It is a win-win for all. A third versatile funding option is opened up for NCUA. Credit unions can choose to participate or not. New promotional and endorsement options are limited only by our collaborative imagination.”

The chairman also reminded credit unions that the agency’s concurrent Request for Information (RFI) seeking applications for artificial intelligence (AI) use in the Agency are due at the same time.

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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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Readers Opine On Infinity FCU Merger with Deere Employees

Readers reacted to last week’s analysis of the Infinity combination with Deere.

A Maine resident: “Very strange indeed – for many reasons; it goes completely against the Maine community approach of being a state with their own mind and will.”

Two comments posted on blog site:

1. Why, why, why? I can’t make any sense of what Liz is saying. . .Wonder what NCUA CURE will have to say?

2. Size matters to Liz and not a single Maine CU wanted to merge with her.

A Financial Consultant to Banks and Credit Unions:

  1. At $341 million, there is enough “scale” to not just survive but thrive. It’s a matter of allocation of resources. I work with a lot of community banks that are doing just fine at that asset size; quietly going about their business producing a good ROA and accreting capital. Relationships drive their business model and that’s what the competitors don’t provide.
  2. The board needs to be committed to independence. The board needs just one member who understands this, is committed to it, and can influence the other board members.
  3. The CEO and leadership team need to be committed to independence. . . there needs to be something holding the team accountable. If there is a merger, capital should be returned to members, not given to acquiring institution for free.
  4. This is a horribly unproductive credit union. The leadership team needs a kick in the pants in terms how they are deploying the resources the members entrusted them with.
  5. The banker in me says this would be an ideal takeover target. They have a great balance sheet. I’d cut out a lot of expense, and turn this into a money-making machine for CU purposes. It would mean being a lot more productive, and use the capital for growth, member give-back and/or community impact.

The CEO is speaking out of both sides of her mouth. What is the board’s relationship with the CEO if unable to do the job to begin with? Are they competent to govern?

A Coincidence? Two Credit Unions Rethink: Maine Credit Unions Call off Merger- Consolidation discussions end amicably between Midcoast FCU and Maine State CU. March 26, 2021 CU Times.

From a Member Who Just Experienced a Merger:

Just touching base after reading this article about Infinity and Deere. Sounds so much like my member story with Xceed merging with Kinecta.

On March 17th Kinecta FCU sent me a similar packet with a Cover Letter highlighting 3 big changes, a joke. The number 1 bit of news is Reducing of the Insufficient/Uncollected Funds Fee from $27 to $25! Its borderline insulting to think longtime members of a well-run credit union would jump for joy on that news. 

Chase Bank is offering a $200 to new customers and free checking with direct deposit. My folks have used Chase since it was called Chase Manhattan Bank, I think since the 60’s. They have been happy with Chase for 50 some years. 

It seems like credit union mergers have become so common it might happen to a person more than once. It’s like opening a new bank account, changing direct deposits, automatic bill payments and so on. I keep my credit reports locked so unlocking them is an added step. 

Its kind of sad but I’ll miss banking with the same place for so long. I remember when working for USAA after leaving Xerox in the 1990s. Xerox FCU still had a small two-person branch in Clearwater, FL for a few thousand Xerox employees/families in the Tampa Bay area. How many financial institutions today would go the distance to have a two-person branch? I think with all the mergers the days of that kind of a credit union operation are coming to an end.

Rather than go kicking and screaming into the Continuing Credit Union Kinecta, I’ll quietly leave my employer created credit union of 30+ years for my family’s national bank. And $200. 

An Historical Perspective:

“All things are lawful, but not all things are beautiful. All things are lawful, but not all things build up. Do not seek your own advantage, but that of the other.”

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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.