I read with great interest Frank J. Diekmann's editorial in the Credit Union Journal (CU Journal, Sept. 3) about how some current events are eerily similar to the S&L crisis of the 80's. Bear with me for some quick thoughts and observations. I lived and somehow survived that era to be reborn in 1998 as a credit union CEO. I can tell you that there was a lot of wheeling and dealing that caused the problem but there was also "regulatory" help along the way.
What first comes to mind is that the genius regulators deregulated the liability side of the balance sheet without deregulating the asset side. When the Feds (Paul Volcker and Donald Regan), in an effort to control the economy, let interest rates go through the roof, S&Ls were stuck with 8% loans and 12% CDs or bank loans. It is tough to make that work. Side Note: Funny thing about Regan. He came from Merrill Lynch. I am sure he had the best interest of the banks and S&Ls at heart!
We can cuss and discuss the bad guys all day but don't forget the regulations that made it possible for the abuses to come to life. Remember it was Congress that increased the share insurance limit from $20,000 to $100,000 and made it very easy to raise funds in the CD market. The unscrupulous executives had a field day creating mega S&Ls overnight and having no fear of the consequences. Of course, depositors had no fear of the consequences either-the Feds insured every penny.
My thoughts also turn to regulatory or supervisory capital. For several years the regulators encouraged S&Ls to merge. The surviving institution would mark the subverted institutions' underwater mortgage loans to market and add the difference to equity as "Supervisory Capital." When finally challenged on this, the regulators simply decided that Supervisory Capital wasn't proper and told us to come up with a "Capital Plan." That is when the institution I worked for failed. Even though we were a half-billion dollar institution, we could not generate $40 million in capital fast enough to satisfy the thrift regulators and the RTC closed us down on a Friday the 13th. Fun!
What really got to me was that the RTC then proceeded to sell all of our mortgage loans for 80 cents on the dollar! loans at a huge loss to get it. There's your tax money at work.
It was a sad, sad time but a lesson learned that I wouldn't trade for anything. At $45-million in assets, I am very content to grow or not grow. My members will tell me by their actions if we are doing a good job or not.
Regardless, I will always make sure that Wymar Federal Credit Union is in a position to serve its members and not in a position where it has to chase real estate half way across the country to get yield.
By the way, I really enjoy Frank J. Diekmann's weekly commentary.
Reggie Gremillion, President
Wymar Federal Credit Union, Geismar, La.
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