NCUA’s Missing 2008 Annual Report: A Case for Sherlock Holmes or a Court?

So is the 2008 Report just missing in the Agency bureaucracy or is this a more serious situation? And why is this issue so important in the midst of multiple responsibilities? An allegorical Sherlock Holmes sets out to get the answers.


The federal credit union statute is very clear: "Not later than April 1 of each calendar year, and at such other times as the Congress shall determine, the Board shall make a report to the President and Congress. Such a report shall summarize the operations of the Administration and set forth such information as is necessary for the Congress to review the financial program approved by the Board."

Since at least 1982, the Board has complied. A written report has been sent to Congress and the President and distributed to the credit union community. But now nine months after the deadline, there is no report for 2008.

In the last available Report (2007) the Board dutifully acknowledges their obligation: "The 2007 NCUA Annual Report is NCUA's official report to the President and the Congress of the United States. The report contains the financial statements of the NCUA Operating Fund, NCUSIF, CDRLF and CLF." (inside front cover)

So is the 2008 Report just missing in the Agency bureaucracy or is this a more serious situation?

But first, why is this issue so important in the midst of multiple responsibilities? Isn't this a relatively insignificant, routine requirement — or is it a fundamental part of the Agency's accountability?

Why NCUA's Annual Report Matters
First, publishing the annual report is the law, plain and simple. NCUA is an independent agency free from almost all formal government and public oversight. This is the one explicit requirement for accountability by the Agency to the two branches of government that created its "independent" status. While there are other forms of ad hoc oversight in hearings as well as the appointment process to the three person board, the Agency is truly independent in virtually all of its processes, policy judgments, operations, budgets and its financial levies on credit unions.

Secondly, 2008 was not just another business-as-usual year. It was the height of the worst financial crisis in a generation. Credit unions were at the center of events. Circumstances like these are why Congress passed the Federal Credit Union Act in 1934. Times like this are one reason that credit unions exist.

The year saw a change of NCUA chair, a new lending limit passed by Congress for the CLF, and most critically a 180 degree change in policy on the corporate credit union system's problems. None of the Agency's actions, or inactions, during this critical year has been reported to Congress or the President. What might seem to be a perfunctory report becomes a critical document in these charged circumstances.

Finally, even if the Report sometimes reads like a public relations effort, it was the only official record of the federally insured credit union system, the collective assets managed by NCUA and historical trends in the US. Traditionally data is included for both the current year and as far back as 1934. The Agency's data and interpretation is a starting point for almost all analysis of credit unions for public policy as well market-facing competitive analysis.

The Report's absence suggests credit unions and the Agency were "missing in action" in 2008 except of course they weren't.

So is this just a case of a missing document that a Sherlock Holmes can readily solve or is the situation more akin to other government response issues?

Enter Sherlock Holmes
Fans of Conan Doyle's creation know that Holmes' first step is to gather the evidence and look for possible motives. So in that spirit:

Holmes first visits the Board members on the seventh floor of NCUA headquarters. He hears the following comments.

"I wasn't even here. So I have no information about what happened then."

"What Report? I inherited a whole series of unaddressed problems. No Report could ever tell it like it really was."

"I just make policy; the staff is responsible for operations. I am sure there is a Report working its way through our standard report-writing process."

Whereupon Holmes goes to the staff level.

He seeks out each of the Agency's offices mentioned in the 2007 Report to see if they have seen the 2008 edition. He finds out the following:

From the Public and Congressional Affairs Office: "No one has asked us to release any Report. We have both a red and blue version ready to go. We just need someone to tell us which one to go with."

From Examination and Insurance: "We have lots of reports here. Which one did you want? There is PIMCO and its several thousand pages, Clayton, PricewaterhouseCoopers and the Corporate Project. But we are waiting to see what we can release-right now all of our reports have been redacted."

From the Central Liquidity Facility: "We will have to call Treasury and see if they will let us send a report."

From the Regional Offices: "Our reports are in. But we haven't been able to get together long enough for the group picture."

From the Office of General Counsel: "There are two legal reasons for the Agency's missing 2008 Annual Report. The first is our determination that releasing the report would undermine the safety and soundness of the credit union system. The information is so sensitive that it would contradict our fundamental statutory responsibility.

"The second is that upon reviewing the law, it is very clear that the law does not specify in what year the 2008 report must be released. Therefore, we are free to use our independent judgment and choose the year to comply with the law. Our best guess at this time is 2015—by then all the principals, or should that be principles, will be gone."

As Holmes leaves the Alexandria, VA premises, with his trusty sidekick Doctor Watson, they see the Agency's senior management meeting about the investigation. They overhear a possible response explanation:

"Couldn't we say that this was Rodney Hood's (former NCUA board member) responsibility and that he assigned it to Len Skiles (former executive director) to finish?"

Is the Situation Too Big for Sherlock?
But is the missing Report just a matter for satire? Or is it a symptom of a deeper issue? An issue that requires a considered response by the Board, credit unions and if necessary the other branches of government? Here's why I believe this to be the case.

In the midst of last year's corporate crisis, a large credit union described his reaction to the corporate events. He had questioned in late 2008 the assurances provided about the value of his corporate's investments and therefore took significant early withdrawal penalties to reduce the risk he believed existed. NCUA then ended up assessing the credit union for the very risk he had taken preemptive action to mitigate. While he did not like the one time premium, he was prepared to do his part for the system.

His real objection was to the Agency's action in guaranteeing every corporate share, not just the $250,000 authorized by law. I asked what was wrong with that. His reply was that the consensus of his peers was that the Agency did not have the authority to go around the clear insurance limit in the law by using another power. In his and his counsel's reading the Agency had made up "the law" to fit the circumstance. What worried him the most was the clear extra-legal steps that had occurred.

In guaranteeing the corporate shares the Agency has levied various assessments, from 25 to 75 basis points, saying these were necessary to cover the risks of their guarantees. Sometimes the justification is that is what their models' required. But no facts, or authorization, were presented to support either the SIP guarantee fees or other corporate assessments. This is a reverse of the above issue—facts have been "made up" to support the law.

Throughout the corporate crisis and later in Congressional and board testimony, the Board has provided estimates using models or outside "experts" to justify its actions and fees. But the data and models are never provided for discussion of the assumptions and calculations, beginning with the January estimate of a $3.7 billion loss in the corporate system. That asserted "fact" was the basis for insuring all corporate shares and taking over the system via Letters of Understanding.

Borrowing Using the Full Faith and Credit?
When the NCUSIF and CLF have used their borrowing authority, the congress has authorized the action by specific statute and appropriation. But when the NCUA states that the full faith and credit of the US Government is supporting the public note offerings US Central and WesCorp, no authorization is cited. Credit unions, not the US Government, are the only source of funds, that I am aware of, that stands behind these repayments.

When the Agency's own chosen managers disagree they are fired as in the situation at US Central or silenced as just happened at WesCorp. How many other times has the Agency ignored contrary viewpoints or facts to conform with a more convenient reality?

The Crisis is Over
The key issue just how far does the Agency's independence go? Using the circumstance of the crisis to justify extraordinary actions may have been defensible 15 months ago. But the crisis is over. Now there is time and opportunity to get the right facts in the open and develop cost effective, collaborative solutions.

Some may say that it is the courts that decide these differences about authority, and that is in fact the direction several credit unions have now gone. But there is also another court—that of public opinion. That verdict—whether rendered through Congress, the Administration or the press—might indeed be swifter and more certain.

Cooperatives succeed in part due to common values that bind all components of the system together. These include collaboration, trust, transparency and mutual support, all qualities that create interdependence, not independence. In the end, NCUA, as with every other institution, firm and individual in our society, is never truly independent. All are connected.

In approximately 60 days another April 1 Report deadline will be upon the Board. It will be an important date not just for the reasons listed, but for whether the board can in fact recognize that its future is inextricably linked to the support and well being of the entire credit union system.




Jan. 25, 2010


  • NCUA has handled the bank conversion regulations in the same conflicted way by using regulation to change the law. The "court' of public opinion and the Congress will weigh-in some day. Credit unions should start planning to be regulated by FDIC. Frankly, it would be best for the members and the public.
  • When will the other shoe drop? With Corporate Central in conservatorship and their losses and insolvency crammed down to Member Corporates...leaves them to pass these losses on through New Capital mandates. The entire CU System in peril - Make sure you review and Comment on the proposed NCUA Corporate Regs!
    Curious Credit Union
  • NCUA is currently not interested in assisting CUs, but only concerned with their employees' job security.

    Their "findings" and "cures" are worse than the supposed problems.

    Rather than offer constructive alternatives, they impose restrictiions that worsen the situation.

    I echo the previous respondent who welcomes the FDIC oversight instead.

  • What should concern us all is what why they are not releasing the report. One must speculate that there there is more bad news to come with corporate OTTI loss write downs. Clearly mortgage securities in general have more hits to take given nationwide mortagage default rates and the restructuring wave that is going on. These events will continue to flow back to mortgage security pools with negative affects on values. And this at a time when NCUA is doing a road show to convince credit unions to recapitalize corporates. And they will not release the PIMCO reports. This should make us all feel good!
  • Is it time that NCUA be conserved if they can't do a better job than this?
  • I believe the agency has tried too hard to please too many - in my opinion they should had held the line on the initial assessment last March. How much have we added to the burden by spreading this over 7 years? Too much.

    The same political pressure they have experienced in relaxing regulatory rules - example we need to be able to make more business loans.

    Hello - look at the banking industry today they are bleeding to death on their bad commercial loans and we are pushing to jump in and get our share of this bad stuff.

    We can all be backseat drivers but we should understand the real culprit goes up the line to those who allowed all of these risky unregulated companies to be in business producing junk loans. In the last several years you could be a mortgage company with nothing more than a telephone - rented desk and chair. How may times have you had to turn down a request to refinance say a GMAC mortgage where the home owner owed 3 times the value of the property. Speaking of GMAC - free ride for the wolf in the hen house.

    Go the the FDIC - think about that one they have their hands full and are licking wounds for over looking the mess their banks were in. The good banks will pay the bill for the regulatory failures over there the same as we credit unions are doing today. They reset fees last February to recoop $27 Billion for the insurance fund.

    Another curious cu