President Obama promised to change the culture in Washington. Yet, in this entire financial crisis, the Administration has made only one effort to appoint a new depository institution regulator: Deborah Matz. The administration has kept Republican Sheila Barr as chair of the FDIC and the Senate has reconfirmed Republican Ben Bernanke as Fed Chairman. The other regulator-OCC, OTS, FHA-are either staffed with acting appointments or have retained incumbents.
Personally, I can't be sure if the White House was trying to make a statement with the Matz nomination. Nevertheless, the NCUA is poised entering 2010 to take the lead as an Obama administration stellar program. However, for the NCUA to realize this potential, credit unions must encourage a reorientation of the agency toward a solutions-oriented collaborative mindset and culture. To do this, the industry and its regulator must collectively pursue a series of changes to help credit unions "capitalize" on their competitive advantages next year. How can NCUA become a more effective participant in the cooperative system? Consider these five policy areas:
1. Accept ambiguity as a necessary factor in decisions. NCUA has repeatedly insisted that what must be paid for today are deficits it says its estimates and models have accurately predicted far into the future. Financial modeling created many of the investments now called toxic assets. It is well to remember the wisdom that all models are wrong, some are useful.
2. Embrace transparency for sound governance. This past year NCUA has-in order to assert the correctness of its regulatory actions-repeatedly used data that cannot be disclosed and models whose assumptions are proprietary. But a cooperative model based upon member support requires open sharing of assumptions. Members cannot expect perfect judgment all the time, but failure to disclose complete information in a timely manner can only lead to mistrust and doubt about both past and future actions.
3. Take the long view, not the short. There are only two sources of capital for credit unions. One is time, which produces earnings and clarifies uncertainty-anything that stretches out the adjustment period for resolving problems, given the proper oversight, can be positive. Although time will not heal all wounds, it does prevent a downward spiral of trying to fix everything at once. Financial problems will heal as consumers and organizations adjust to new realities.
4. Review and revise the model for the NCUSIF. An insurance model based on premium assessments-no matter how the premiums are paid-will not resolve a systemic crisis. The NCUSIF must become an instrument of efficient capital allocation by providing temporary funds to credit unions that are temporarily undercapitalized. That interim would also differentiate the significant difference between the cooperative-based NCUSIF and banks' premium model at the FDIC.
5. Lead by example. Every credit union, whether in the center of the country's real estate decline or at the margins, has had to adjust its outlook. Delinquencies, charge offs, and even investment returns near zero are all outcomes outside traditional performance ranges. Credit unions have had to re-examine carefully every expense and commitment. NCUA on the other hand has assessed an insurance premium even though the NCUSIF was within the normal operating range; increased budgets; promised more hiring; and continues to spend on external resources when solutions are available among credit unions themselves. Effectiveness is not demonstrated by how much an organization spends, but by how well it achieves its guiding purpose.
In 2009, credit unions have increased market share across the board, from deposits, to mortgages, to auto loans. While it can be tempting to focus on the victories of the past year, now is the time to focus on the changes needed in 2010. Credit unions have been a model for financial institutions. To continue this role, they must lead with an agency that itself is a model for other financial industry regulators.
Chip Filson is president of Callahan & Associates, Washington, D.C. For more info: www.creditunions.com.
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