New Sheriff In Town Should Ask Hard Questions Of Deputies

When Michael Fryzel assumes the chairmanship of the National Credit Union Administration next month, he’ll represent more than just the latest in a line of presidential appointees who survived all the deal-cutting and trade-offs needed in Congress to make it to the board–he’ll bring a new set of eyes and, ideally, some much-needed scrutiny and hard questions over who’s minding the store over at the deposit insurance fund.

As far back as I can remember NCUA board members have seemingly engaged in an internal game of Who Can Issue The Most Press Releases. Ribbon-cuttings. Conference keynotes. Proposals to cut regulations. Proposals to add regulations. And the mother lode of press release fodder, the annual dividend paid by the National Credit Union Share Insurance Fund (NCUSIF) to federally-insured CUs.

There were pre-pre-dividend announcements that a dividend was likely, followed by it’s-getting-closer pre-dividend announcements that a dividend was very likely, followed by the actual announcement of the dividend!, followed by photos of each board member posing with a figurative dividend check, followed by the post-dividend announcement, not to mention–wait, of course it was mentioned–mentions in every board member’s public remarks.

One Funny Thing

For members of the NCUA board, the annual dividend paid, well, real PR dividends. And it was all due, as the respective releases were sure to tout, to the strong management and oversight of the fund by NCUA.

Funny thing is, there hasn’t been a dividend paid to credit unions in two years, and remarkably, no press releases about that. In May, the NCUSIF posted a $90-million loss–I’m still waiting for that release, too (“Agency Announces It’s Streamlined Funds It Manages In Portfolio!”). And if your credit union is waiting to goose its year-end number with your 2008 dividend payment, don’t expect to read about that, either.

If you’ve prudently managed your credit union through the tough times and the margin squeeze and the slow membership growth and the sliding housing market and members (and employees) who no longer need loans for automobiles but for the gas that goes in them, all the while not causing so much as a nickel’s loss to the insurance fund, what you deserve is praise and congratulations. What you’re going to get is neither, because the attention to your good deeds has been drawn away by the bad deeds of a relatively few management teams and boards that caused losses being charged to you and your members.

Cal State 9. Norlarco. New Horizons. Huron Area River FCU. All have failed with the NCUSIF picking up the tab. These failures and the decisions that led to them didn’t happen overnight. They were years in the making, and the question that every credit union should demand be answered is, “Where were the regulators?”

Here are three little words that should send up a pole’s worth of red flags: “Florida real estate.” These credit unions plowed hundreds of millions of dollars into speculating on real estate in the Sunshine State, and now much of it is under the control of a new landlord: NCUA. How could anyone not see that coming? Google “Florida real estate swindle” and you’ll get 22,000 hits.

Ironically, had any member walked into one of these same credit unions, met with a loan rep and explained they needed to borrow money to buy houses in Florida in order to take advantage of the housing bubble that would never burst by selling them later at a profit, the loan officer certainly would have advised against it.

NCUA will no doubt respond that all of the failures occurred at state-chartered institutions. But the “N” in NCUSIF stands for National, as it’s managed by a federal agency charged, first and foremost, as those aforementioned press releases always point out, with the “safety and soundness” of the fund.

Remaining Uncomfortable

Before Mr. Fryzel finds himself sinking into the comfy culture that eventually envelopes everyone in government, he would be wise–and credit unions better off – were he to immediately head into the field and start asking hard questions, such as “Specifically, who is responsible?” “Why wasn’t this caught?” “Is this your signature signing off on this?”

Perhaps he should even avoid the agency’s Alexandria, Va., headquarters altogether until he gets answers. He’s a former state credit union regulator in Illinois, after all, so he’ll be able to skip the Introduction to Confusing Credit Union Lingo class most board appointees need.

Outgoing NCUA Chairman JoAnn Johnson observed last week that as a political appointee, “You are coming into an agency with career staff who are going to be there long after you’re gone.” Indeed. Many of NCUA’s regional directors and assistant RDs have been with the agency their entire careers and figure they will outlast this latest guy, too. Maybe Mr. Fryze I will find the agency did all it could and examiners were on top of it. But maybe the new guy needs to shake the place up and replace some of those old guys.

Now that would be something worth issuing a press release over.

Frank J. Diekmann can be reached at fdiekmann<at>cujournal.com. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com