February 22, 2012
By Chip Filson
NCUA published the KPMG-audited NCUSIF 2011 year-end financial statements on February 15. It was one of the earliest releases in memory. This posting provides the credit union owners of the fund a timely opportunity to review NCUA’s stewardship of the cooperative system’s collective capital and to ask what the results mean.
The NCUA outlined the industry’s responsibility to monitor the NCUSIF when it established the 1% deposit funding structure: Don’t set it up and forget about it … it’s your responsibility to keep it working because if you don’t, it’ll go just like everything else government touches.” (NCUA 1984 Annual Report, page 18)
Disclosure is built into the cooperative structure, and timely transparency allows member-owners to take informed action based on their assessments of the fund’s performance.
The audit contains several notable numbers:
NCUA provided no commentary or analysis of the numbers, but several observations flow from the information provided.
NCUA’s reserving process is in urgent need of review, and the best way to do this is for NCUA to be more transparent about the methodology. Credit unions paid a severe price (almost $1 billion) for over-expensing in 2010.
This over-reserving raises the more fundamental question of whether the same error has occurred in the TCCUSF and estimates of corporate losses. In that case, the NCUA has reserved more than $12 billion from corporates for potential OTTI losses. Surely the NCUA can compare the results of those early projections to actual outcomes more than three years later.
Several additional comments may be helpful as readers try to develop conclusions:
NCUA has put numbers out in a timely manner for the industry to use. Now it is the responsibility of credit unions to provide their views on the issues raised — as they would expect their own members or directors to do with their own financial statements.
Data almost always has a context. Interpretations of what data means is important. Cooperatives benefit from different eyes looking at their information — be they the eyes of members, the press, analysts, Congress or the community at large. Fostering multiple views of NCUA’s management of the the NCUSIF should be a vital credit union regulatory advantage by enhancing the fund’s reporting and functioning.
The NCUSIF numbers support the system’s positive, and in some areas record-breaking, year. But they also appear to reflect an inability to keep accurate financial reporting within the agency. Much can still be done to improve the management of this vital $11 billion pool of credit union collective capital.
7/26/2012 04:04 PM
The fund's financial performance should be in GAAP format - if the intent is full transperancy. NCUA needs to be reminded that it is members deposits that is at stake and CU Directors and CEOs take that "fiduciary resonsibility" seriously.Looks like NCUA motto is "Do as I tell you and not as I do".
Excellent point by Mr. Fogg. Where is CUNA on these issues? Are they more interested in maintaining open door relationships with ncua management than in addressing these historical, critical issues? For that matter, where is congressional oversight? Credit Unions are in need of lobbying representation and we are not getting any effective lobbying from the trade organizations.
The shameful shenanigans of the NCUA, as profoundly described in Chip's analysis, is one more reason a rational credit union would have for wanting to change charters just to change regulators.
It is time for the credit unions to make the NCUA accountable. Who is willing to begin?
Once again Mr. Filson brings to our attention matters of critical importance to the credit union movement. I do not hear CUNA's voice representing credit unions against NCUA's mismanagement. Nor do I see any effort by Chairman Matz to address these concerns. Quite the opposite. One easily gets the impression that the NCUA feels it does not need to justify its actions and can not be held accountable.
What's ironic is that this is the same NCUA that beats us up, down and sideways over our own allowance methodology. They have no problem telling us that we are over-reserved, under-reserved and what type of inane methodology to employ. Our footnote disclosures this year for allowance are larger and more detailed than ever.
7/26/2012 04:02 PM
The is very good insight and analysis of the NCUSIF. They should improve the allowance methodology for the industry for the years to come and more disclosure just like the natural CUs.
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