The dominant credit union event in the first quarter of 2009 was NCUA’s corporate stabilization effort. Begun on January 28 with NCUA’s announcement of a systemic problem that would require an estimated $3.7 billion in NCUSIF support plus another $1 billion for a capital note, the die was cast.
The investment problem in the corporate network was not new news. Throughout the fall of 2008, NCUA had requested external plans or advice in meetings with the corporate network, large credit unions and trade associations.
It appeared from the January 28 description of this first step, to be followed by a formal rule-making process, that a collaborative solution was underway. The network would be stabilized and a new architecture developed for the future.
Credit unions responded dramatically, adding over $12 billion in deposits plus contributing another $8 billion in SIP loans to the network’s funding base in the first two months of 2009. Then on March 20, a second shoe fell. NCUA deployed 70 examiners and exercised its conservatorship powers to take over US Central and WesCorp.
NCUA announced that both institutions were insolvent and that corporate losses were now at least $10 billion, of which $6 billion would be an NCUSIF expense and $4 billion from writing off the member capital in the two corporates.
This abrupt change from collaboration to dictate, based on data from its own models and PIMCO’s analysis that NCUA said it would not release, accompanied by the dramatic escalation of immediate expense write-offs, sent shock waves across credit union land.
Confidence in NCUA’s leadership dramatically changed. A chasm developed as NCUA rushed to indict the management of WesCorp and provided, at best, incomplete and, at worst, inconsistent information about the corporate situation.
Two examples of this inconsistency: the first is the loss estimates at US Central. In January, NCUA announced that the system would have to write off the $1 billion capital note deposited in the credit union. In May, U.S. Central, now in conservatorship, published its financial statements indicating not only that it was not insolvent, but that there were positive balances in capital shares and the NCUA note completely intact. At WesCorp, NCUA initially announced that if the securities in portfolio should recover value, then member capital shares could be partially restored. Less than a month later, NCUA said that all capital shares were “extinguished” and had no future value.
NCUA then proposed legislation (passed as HR 2351 and signed by the President on May 20th) that would spread the costs of the Corporate expenses for up to seven years. However, credit unions at March 30 reported having already expensed almost $5 billion of the $6 billion loss estimate. Moreover, there is additional borrowing capability in the bill for up to $30 billion, which if used, could encumber future credit union earnings for years to come.
New Leadership Announced
As the corporate situation continued to unravel, with competing views of the future and most of the system in “suspended animation,” the White House announced that Debra Matz, a former board member and then senior executive at Andrews FCU, would be nominated to be the next Chairman of NCUA.
This new leadership offers the potential for a substantive review of not just the corporate efforts, but of NCUA’s overall regulatory practices. Many have felt a “short-termism” in NCUA’s approach to problem resolution, an absence of collaborative values and approaches, and a failure of transparency that suggests either a lack of confidence in the Agency’s own analysis or in credit unions’ ability to understand key issues.
But one person cannot make a difference, identify better options, change the tone, and regain the commitment of the system’s stakeholders without help.
Traditionally cooperatives have relied on trade associations, formal rule making, or sometimes the press to advance their point of view. But if NCUA’s role is to be changed, then all credit unions need to be involved to support a “reformation” of the Agency’s role.
At critical times in the governance of a cooperative, the member’s voice is essential. In credit unions, changes in major by-laws, charter or insurance are some of the events requiring full member consultation and approval. Now, new regulatory policies are needed and the entire NCUA board, not just the new Chair, must hear from the industry.
Hindsight may identify yesterday’s failings, but future success requires all to have confidence that there is indeed a shared vision. The time is now for the grassroots to communicate not just their concerns about corporate events, but also their hopes for the cooperative model and how to restore faith in the federal regulator.
One way to make your voice heard is through Credit Unions Rising (creditunionsrising.com), a new virtual platform that amplifies your message to your peers and throughout the system. Through awareness, analysis and action, a national dialogue is underway about what credit unions’ future should be. Will you join in this effort?