When the notorious bank robber Willie Sutton was asked why he robbed banks he replied "...because that's where the money is." While one would have hoped for a higher standard from the NCUA, the nation's credit union chief regulator, when asked why they were pillaging the capital accounts of thousands of natural person credit unions to support a few, badly managed corporate credit unions, the NCUA response was tantamount to "because that's where the capital is."
The NCUA Board action, documented in Letter No. 09-CU-02, to restore the NCUSIF to the regulatory limit level of 1.30 appears to be within their prescribed regulatory authority. However, it is the advisability of the proximate cause of the NCUSIF deficiency that many have called into question. Whether, the $1-billion U.S Central Credit Union bailout is fair, prudent and consistent with the overall mission of the credit union industry is another matter altogether, and will require an honest assessment by all involved, unclouded by the regulatory imperatives of the time.
The time is long over due to consider either the modernization or even eventual elimination of the Corporate Credit Union system. It will be interesting to read the comments from the NCUA's Advance Notice of Proposed Rulemaking (ANPR) on Corporate Credit Unions. We have a very comprehensive system of funding and payment system entities operating on a national basis; the Federal Reserve and the Federal Home Loan Bank System and a host of privately owned investment advisers.
One might ask:
* Where is the efficiency in a redundant system of 28 corporate credit unions?
Industry questions persist about why the NCUA insists on maintaining such an archaic system.
Some have even suggested that the NCUA supports a redundant system to support its own preservation, but that may be up others to decide in the foreseeable future.
* Given the massive problems that have recently come to light, one might ask: who is watching over our members' money invested in the corporate credit union system?
* Why didn't NCUA examiners question sooner the massive volume of high risk investments in some corporate credit unions' portfolios? These are the same investments that have been publicly questioned by other examiners in many of the FHLB portfolios.
Again, some have suggested that the NCUA Regulators were as enticed as management by their high-yield, and - like Wall Street - did not really understand what they were dealing with.
The NCUA Board decision to bail-out U.S Central with a so called "first capitalization" payment of $1 billion dollars, while acknowledging that more funds may be needed, has done little to provide comfort to reduce the industry fears. Given the magnitude of the problem our entire, hard-fought natural person credit union capital base is at risk of being wiped out entirely, in a vain attempt to save an organization established to serve the industry.
* Why call it the first capitalization plan while leaving U.S Central's Management and Board entirely intact? How can these same individuals be trusted to fix the problem they created? Should we expect different results with current management? Or is this the first in a series of similar plans?
* Would the NCUA do the same for any natural person credit union? If the Corporate System survives, but the industry is eliminated, or left so inadequately capitalized as to be irrelevant, then why save the captive? Are they not there to serve the industry and not their own agenda?
Several months ago when NCUA developed the CU SIP program to combat the corporate credit union liquidity problem it was articulated then that Corporates could not access the CLF based on statue.
* Why wasn't a legislative solution obtained at that time? That liquidity problem has now evolved into this solvency problem.
These are not questions driven by an individual, or an isolated institutional agenda, they are being asked by literally thousands of credit unions. We are only interested in how to respond to our members. When they ask "what does this means for our money held in accounts that have historically been the safest of safe, through multiple financial crises?"
It consistently has taken the NCUA Board an interminably long time to make any type of decision on requested changes to our simple charter. Yet somehow, the most massive heist of our members' hard earned capital seemingly happened overnight. This move, presumptively to strengthen the corporate credit union system, seems reactionary and overly expeditious. We have confirmed that not only were natural person credit unions not consulted, it seems that no discussions were held with state supervisors such as the Massachusetts Bank Commissioner. So, can we safely assume that they also did not seek opinions from any other State Credit Union Regulators? We are left with the nagging question; Whose advice was solicited and used? Was it the same regulatory group that was responsible for examining these corporate credit unions? Or was it the self serving management structure of the corporates themselves?
Most credit unions will earn a negative ROA for 2009 based on this bail-out action by the NCUA Board and, regardless of the statement made by the chairman in his Letter to Credit Unions (LTR #09-CU-02), in which he states this action is a "voluntary capitalization by natural person credit unions" of the corporate credit union system, the truth is, there is nothing voluntary about it!
Perhaps even more dangerous is the statement by the chairman, contained within this same Letter to Credit Unions announcing this regulatory larceny of our members' money, will be a write-off on the NCUSIF Deposit. By now, everyone is certainly familiar with the accounting concept of Other Than Temporary Impairment (OTTI). For years the bankers have claimed that we credit unions have overinflated our balance sheets by this NCUSIF deposit asset. I now wonder whether our regulator has opened the door for these assets to be considered impaired. If nothing else it will be incredible marketing fodder to our competitors.
Reactionary, some might say cloaked, policy responses generally produce unintended results. It remains to be seen how many unintended, dangerous and destructive results will come from this emergency action. One thing is certain. This action will increase consumer confusion and fear at the most difficult economic time history when the need to articulate the positive strengths of credit unions has never been greater.
Peter J. Muise, President & CEO
First Citizens' Federal Credit Union