Will The Word From The Top Ever Reach Bottom?

Since its launch in 1990, the Hubble Space Telescope has peered across distances that are almost incomprehensible to us miniscule humans. And yet there remains one distance in the universe that travels further than anything the Hubble has been able to discover: the distance between NCUA's headquarters in Alexandria, Va., and its examiners in the field.

Or at least that's the impression one always gets after listening to credit union CEOs and managers when it comes to the examination process. CU leaders have long complained that what is said at the NCUA board level about changes in policies, procedures and practices doesn't ever seem to reach the examiner level.

NCUA Chairman Debbie Matz has been doing what she can to shorten the distance between Alexandria and desks and tables at which those exams take place. The most recent effort has been six Listening Sessions being held around the country by NCUA, the fourth of which I sat through recently in Orlando.


The Sand State Difference

One person who has been to several of those sessions indicated the Orlando session had a somewhat different tone than the three sessions that preceded it. There were more complaints about overbearing and allegedly inconsistent exams, something that person said was likely due in part to Florida being the first session in a "sand state," where regulators have cracked down.

The big news out of the Not The Happiest Place On Earth session was reported in CU Journal on June 18; NCUA will be lightening up a bit during exams as the economy improves. "As we come through the downturn and see some signs of progress, I think you will see some changes from NCUA," said Matz.

Somewhat ironically, it has been Matz who's been instrumental in one instance where the word from the NCUA HQ was actually heard loud and clear in the field: tough love would be the new examiner guidance.

Matz reiterated a point she has made in the past, about arriving as chairman and finding herself "shocked at how severe the problems were."

"We were giving credit unions too much flexibility in responding to DORs and in resolving problems. The board made a very conscious decision to not let that happen again. We decided to up the ante, if you will."

And that bigger ante came before NCUA announced the assessments and stabilization fund. "We are training our examiners on the differences between DORs and examination findings. There have been legitimate issues raised there. That's not to say our examiners are going to back off when there are issues there. But we will make more of an effort to distinguish, and I think you will feel that as the year unfolds."

There may be some eye-rolling in the masses of CEOs and managers when they hear these NCUA pronouncements. Certainly NCUA Director of Examination & Insurance Larry Fazio elicited more than a few eye rolls from his Orlando audience when he said NCUA "understands" that risks must be taken and that CU leaders "can't live trying to avoid failure, you have to seek success."

I can only imagine the first joint interview where the examiner has a "finding" that the credit union made a poor decision of some type and the CEO responds, "Hey, sorry, but we were just taking your advice and seeking success."

Fazio did note that previous Listening Sessions had led to agreement at NCUA that it could do a better job in helping the regulated to be better prepared for exams. To that end he suggested a "prototype" ideal resolution model he said begins with the credit union identifying its own problems first and being upfront about it.


CAMEL, MBL, Risk & More

Other points made during the session:

* One CEO complained his board chair had received a letter from NCUA critical of the CU's "management" on which the CEO wasn't cc'd. Fazio said the agency has since begun cc'ing managers.

* Another person complained NCUA's redesigned website needs to go back to the drawing board, as appropriate documents are hard to find. That led to an admission from Matz that "I have to confess I have trouble finding things on it." Matz said NCUA's new CIO has fixing that problem as a "priority."

* Fazio said no changes are pending in how NCUA defines "CAMEL."

* NCUA Executive Director David Marquis said CUs looking to resolve MBL-related issues should get the agency involved early on.

* Region III Director Herb Yolles said the best focus for supervisory committees would be on strategic thinking for the next three years or so. Matz added there should also be a focus on internal controls.

* One CEO noted his CU has a $700-million "credit exposure" on his balance sheet, thanks to investments, in the U.S. government, and wondered whether the agency might see risk there.

"Credit unions don't have that big a position in Treasuries overall. They have the full faith and credit of the United States, and if that's a problem, we've got really bigger problems."

So that's the word from the top. Let me know what you're hearing at the bottom.

Frank J. Diekmann can be reached at fdiekmann@cujournal.com.