I was disappointed by the comments from the writer who wrote the anonymous letter expressing no surprise that NCUA needs more examiners. First of all, I don't buy the argument that NCUA reprisal is a reason not to sign the letter and take responsibility for the point of view expressed in the letter. Stand up and let us decide if your letter makes sense. Maybe NCUA is right in spending so much time in your credit union.
I have been critical of NCUA's examination process. But my criticism has always been that the process is not designed to identify the key risks and then to determine if the credit has the controls to manage that risk and that those controls are operating effectively. I have been critical that the M in CAMEL has not been subject to objective metrics. I have been critical that the NCUA doesn't practice prompt and corrective action. My view is that problems are allowed to continue long after they have been noted in the exam. In other cases key problems are not identified until too late. I have also been critical that the NCUA's problem resolution process fallows troubled CUs to continue operating far too long with the same management that caused the problems. Forbearance and a faulty exam process increase the losses to the insurance fund. I think the Inspector General's remarks support my view. Unfortunately, he has only reviewed 10 failed credit unions. I think the problem is far more pervasive.
The writer who feared giving his name is off base. I believe that NCUA is on the right track. We need better-qualified examiners and we need more of them. When was the last time you heard of a credit union hiring an examiner? Thirty years ago when I started work at SAFE, examiners were often hired by credit unions because they knew as much or more than credit union professionals. Many NCUA examiners went on to become some of the best credit union CEOs (Gordon Dames, Jim McPheters, Barry Jolette, Rick Brandsma--to name just a few). That isn't happening today because NCUA examiners generally are not as well trained or knowledgeable relative to credit union professionals as they once were.
Disappointed In Poll Results
I am disappointed that 78% of the respondents to the Credit Union Journal poll say that NCUA's new budget is completely undeserved given the oversight failures. We don't have a choice. The insurance fund is funded by all of us. If failures continue we will all pay. I think you get what you pay for. Higher salaries will allow NCUA to attract better examiners. We need better examiners. But they also need a lot more than just higher pay.
What is the answer? I think part of the answer is that we need new NCUA leadership. Leadership is always responsible for success and for failure. The failed oversight process at NCUA is a failure of management. If we want to fix the problem we have to fix management. That starts with the NCUA Board. A reasonable person has to ask, "Who runs NCUA? Is it senior management or the board?" Once we know that we can fix responsibility and begin the process of change.
The Inspector General's findings are a sign that there are leadership problems. The comment that NCUA accounting problems happened because, "we are a small agency". is another sign of leadership weaknesses. Hiring Suze Orman is another sign of misguided decision making. We don't need a PR campaign to make people feel better about credit unions. We need better CUs and that begins with better leadership at both credit unions and at NCUA. I would suggest the following changes:
A Checklist For NCUA
• We need to fix the examination process. I think examinations should be based on assessing the risks that the credit union has taken and then testing to see if controls are in place and operating to manage those risks. I strongly believe that examination results should be made public. Members are a key control to make sure that Boards and Supervisory Committees are doing their job. Public examination reports will address the concerns of people that believe that NCUA punished those who oppose NCUA. I don't believe that. I think too many credit unions are in denial about their own problems and place the blame on NCUA.
• We need to hold NCUA accountable for their own performance. The management of the failed corporates have all been fired. Who did we fire at NCUA for the lapses in examination? Where is Kent Buckham today? What about the 10 failed CUs identified by the Inspector General? Who was fired or disciplined for those lapses?
• We need better standards for who serves on the board and supervisory committee. The changes needed to the M portion of the CAMEL should include a careful assessment of the qualifications and performance of volunteers. Volunteer performance is a key to credit union success. We should require at least one person on the Supervisory Committee qualify as a "financial expert." Members of the Board and Supervisory Committee must be reviewed for conflicts of interest and must be able to read and understand financial statements.
• We need better standards for the management team at credit unions. How often do we see management officials who were in charge at a failed credit union move to another credit union and repeat the same bad policies? I believe most of us can identify credit union leaders that are making big mistakes. Does the NCUA or state regulator assessment reflect their performance? I have had the opportunity to conduct due diligence on a number of failed credit unions. My experience is that regulators are not doing a good job of assessing management. The biggest risk to any credit union is the quality of management. That's why we get paid the big bucks.
I support NCUA pay raises and new staff. I am not satisfied with the job that NCUA is doing. But we have to give them the resources to improve. NCUA insists that we document our vendor management. We need to hold NCUA accountable for their performance. We pay NCUA as much or more than any vendor and their performance is critical to our success. NCUA must improve its performance. Each of us must do our part, too. If we were doing our job we would not care as much if NCUA was not doing its job.
Henry Wirz, CEO
SAFE CU, North Highlands, Calif.