Disaster Looming in a Word Called Complex

Of all of the dangers imposed upon the credit union movement by the Congress and NCUA, this recent one is possibly the worst and the most far-reaching.


(This article was excerpted from the February 2000 Callahan Report)

Of all of the dangers imposed upon the credit union movement by the Congress and NCUA, this recent one is possibly the worst and the most far-reaching. Spurred by Congress, NCUA has labored to define "complex" as it relates to credit unions, and in the process determined that -- in NCUA's opinion -- a vast percentage of credit unions are indeed "complex" -- whether from 30 to 70 percent is as yet unknown. NCUA's labors include formulas that reveal a credit union to be "complex" and formulas that purportedly allow a "complex" credit union to escape some of the worst regulatory strong-arming owing to its "complex" label. These labors at definitions, formulas and methods of "relief" have no doubt been ardent, even mind-exhausting.
But those who have labored have completely missed the point.

The danger is not that some credit unions might wander a bit too far into, for example, small business lending. The real danger is that a great many credit unions are going to be stained with the label "complex," and that the term is going to be used against us -- and not just by our vicious competitors, the banks, but also unwittingly -- though nonetheless harmfully -- by our regulator.
Consider: Bankers will say, "See, these vast numbers of credit unions are Ôcomplex.' But credit unions were set up to help simple people, and simple people run them. Now these credit unions have become complex. Can simple people really run complex institutions? Our guess is that complex institutions run by simple people are just a disaster waiting to happen, one that will empty the pockets of taxpaying Americans. At the very least we have to keep these credit unions from growing -- for the sake of the country."

Our own regulators aid and abet such credit union critics by defining so many credit unions as "complex," thereby putting such credit unions on a kind of watch list (whether or not that watch list is a formal one). The media, the Congress, the public are all going to be somewhat uneasy about this long "list" of "complex" credit unions. The very word sows doubt and hesitation at a time when we need to be vigorously pursuing new strategies to follow the members and serve them better.

Creating a Problem Out of Nothing
Of course, there never was a problem to begin with. The Congress did not define "complex." It left it to the NCUA. When the act was written there was not any hint that the credit union movement was in trouble. We were doing just fine. Just look at the history of the NCUSIF -- how much had it paid out in the last 15 years? Look at the spending record of NCUA.

There was not a problem when Congress wrote its charge to NCUA to define "complex." There was not a problem when NCUA undertook to define "complex." And yet here is an embracing definition that creates whole new levels of bureaucratic oversight and interference that may well wreak havoc upon the whole credit union movement.

The Congress, occupied of course with plenty of other weighty matters, at least had the right to assume that the regulator would define "complex" in a reasonable way and not, as it were, cry FIRE! in an auditorium. But Congress was wrong. The regulator, seemingly without sufficient understanding of how the credit union movement works and what it needs to prosper, has sown the seeds of panic.

Blind to Their Own Folly
The other tragic part of this is that the NCUA regulators do not even see what they are doing. They have attached to themselves so much self-importance they are blind to their own folly. This failing is never more in evidence than when a regulating body feels it is firmly in control. Such is now the case, because there are fewer checks and balances now on the regulator than in any decades past.

And the trend is accelerating. The more credit unions are "complex," the more the regulator gets to say, "You are so complex you cannot run your institution yourself -- you need our help to run it, and we know just what to do."

Penalizing Success
Here's another tragic part. The term "complex" is not only going to stain the movement by sowing seeds of doubt among the public and abetting our enemies, but it is also going to harm individual credit unions. It can come back to bite in a thousand ways, and the worst will be where it can do the greatest damage, that is, when a credit union is successful. It is when a credit union grows and prospers that it will top the list of "complex" so that it would then fall prey to Prompt Corrective Action. Success itself -- including bigness and mergers -- will be punished. And that is another death knell for the credit union movement.

In the Wrong Court
Our regulator should be our cheerleader. Unfortunately, owing to a deep misunderstanding of credit unions it is playing into the hands of those who would shrink us, keep us small, keep us hidden from view. It does this when it allows others to help define "complex." If they allowed us instead to define "complex," only a small number of credit unions would be labeled so and the whole movement would not fall under a cloud. But it looks as if that cloud is lumbering into place, and that is bad news indeed for the credit union movement.




June 5, 2000



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