March 23, 2009


  • This media (and whitehouse) driven "crisis" is a fraud. Worst since the depression?! Not even close. This NCUA action is accident forgiveness for credit unions. Insure our insurance at the expense, and not just monetary, of every credit union in the country. PIMCOs "in control" verbiage closely models that of Obama's "take over" form of regulation he spoke about last night. The slow death march of private American industry marches on...
  • The more important question is why did the NCUA wait until now to do this? The signs that Wescorp and US Central were insolvent have been clear to us for over 18 months now. We pulled out our funds and the NCUA does an end around and charges us through the insurance fund. The NCUA is on par with our other government officials, Monday quarterbacks.
  • Very insightful, and thought provoking. Can we survive Federal regulators, that is the question. I hope someone is out there to watch over the Credit Unions true interest.
  • Thanks Chip for articulating what many are thinking and feeling. I have seen this industry face many challenges, such as taxation attempts and the FOM lawsuits. In each case, our leaders banded us together, like no other industry, and we were able to present a united voice and defeat our opposition. Little did we know that our own regulator would turn against us and attempt to bring an end to credit unions. This invasion and unnecessary occupation by the NCUA “axis of evil” has started a domino effect that they didn’t anticipate nor can they control. If this action has been in the works since September of 08, then this is either a complete failure of NCUA to perform their responsibilities as a watchdog or an intentional act to bring down the corporate system by withholding valuable information. At the very least, the on-site regulator sitting in the building at WesCorp should be fired for not raising the red flag earlier. In addition, the NCUA should be held accountable to explain why their PIMCO “guess” is so far off. Their selection of PIMCO seems very self-serving. What is up with their "SS" style secrecy and "blitzkrieg" mentality? It is time for us to once again band together to fight against this unjust and unnecessary action. Take the wheel Chip and call up the credit union warriors. I know you are just waiting to be called to duty, Mr. J. This is a call to arms for those of you who love this industry and the members we serve. Please Chip, bring us together.
  • Bravo! Least the NCUA forget... Like all other institutions that dared to challenge the fundamental credit union movement and foundation of "People, Helping People," credit unions will come together in the largest grassroots movement ever to be launched, and remind the NCUA that we will not go quitely into the night, we will not take their irresponsible actions lightly, and our roar will be heard by Washington!
  • The cost of maintaining my TAX EXEMPT CHARTER now exceeds its value. A conversion to a Mutual Savings Bank is our only option. This credit union can no longer afford the NCUA regulator. Within 72 hours of taking over the Corporates they have WIPED OUT our member capital & Paid In Capital. This is jusst installment #1. Good luck to those that may survive. This is an unjust taking - it is condemnation without compensation. Indeed the NCUA is a ROGUE agency
    Marianne Carpio
  • Chip, As always, I appreciate your perspective on these recent events. As you know, my credit union was the dark spot on the horizon of Ed Callahan's term as Chair of NCUA. At that time in fact, our losses would have been too great for the NCUSIF to bear. For a host of reasons, including prevailing sanity, we were allowed to remain independent and the market eventually corrected itself. We came back as a vibrant player in our community. But this recession has hit many of us in California very hard and the timing for NCUA's actions could not come at a worse time for us. I find it strangely ironic that we're again being pushed toward that edge by the very regulator that once spared us.
    Mary C.
  • Thank you for articulating the festering concerns that many of us have inherited! Unfortulately, how can we "un-ring" the bell?
    John R. Schaffner
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  • Watch the trickle down to natural person CUs
  • Chip, this is the best writing and most thoughtful analysis you have ever done. The counter point of what should have been done ... NCUA thinking their number was the Right One ... you nailed all of the issues. Thanks partner
    Jeff Farver - San Antonio
  • Do you provide consulting services for conversions to mutual savings banks? That and/or private insurance is the only solution. The NCUA has completely lost its mind and is forging, as we speak, the doom of this industry.
    Larry B. Davis
  • Some sanity in a insane time. This article was "dead on" right!
  • Very thought provoking. The conflict of regulator and regulated is huge. I fear NCUA will make midiocre, if not poor, decisions whether they see this or not. Once our MCS and PIC has been written off the only master they need to serve is the government. This could make it easier to write the whole thing off and move on (remember CapCorp?). Afterall, the government is spending $1 trillion dollars fixing other institutions. Who'll notice another $16 billion? Does NCUA even care if we/they survive?
  • Why stay a credit union? The damage is done. The CCU situation is just a down-payment. The natural person credit union problems will be next to surface. In the end the facts will show credit unions are worse off than banks.
  • Excellent article! The NCUA has worried about transparency in executive compensation and approving community charters, while going asleep at the wheel with Corporates. The fox (NCUA) was charged with watching the hen house. If it was incapable of watching the hen house, how will the run the hen house? How much due diligence (interviewing) did they do in picking the new leaders of the Corporates?
  • Excellent article Chip. Thanks for your insightful comments. Hopefully someone at NCUA will read it and take note.
  • You Nailed It! In writing about the Hyatt Regency's bridge collapse in Kansas City (1981), noted Engineer and author Henry Petrosky surmised after hours of testimony, that one computer aided model does not support your argument. The proof is in the rubble. Just when this become rubble remains to be seen It's times like these that bring me back to an analogy written by Henry Petroski in the wake of horrific collapse of the
  • Excellent article and right on. Since when as an industry did we forget that our capital belongs to our members. Credit union members, as taxpayers, are being asked to bail out the rest of the banking industry, and are also being asked to bail out the corporate credit union system without any other assistance. How do you answer the question, "Why should I belong to a credit union?" Does anyone truely believe that the NCUA can manage a corporate credit union better than the professionals that were in place (Does Cap Corp ring a bell)? If the NCUA is trying to restore confidence in the system, their action will have just the opposite affect.
    Don Winstead
  • The Credit Union professionals in this country should go to church today and express their thanks that we have the great mind of Chip Filson working in our behalf. Perhaps now the congress and the White House will move the NCUA leadership circumstance higher on their priority list.
    Dick Johnson
  • Spot on! The Blind Faith in the infallibality of math and models is what got us into this mess. How well did Pimco fare since the summer of 2007 in "predicting" the current market condition and can it share its own "prediction" for the future? Andwhat will be the consequences for the NCUA board and staff?
    Franck Schuurmans
  • Spot on article. I do hope someone from NCUA gets this and wakes up. This corporate bailout and stabilization was delusional to begin with, and it only got worse yesterday. I hope there is still a credit union movement left after NCUA has their way.
  • Very thought provoking article. The NCUA is putting the entire CU industry at risk with their actions. I found their comments about PCA in regard to captial to be surreal. How am I going to build capital if they are billing me for almost 100bp? Never in yesterday's call was there any information on the acutal "economic loss" on the investments. Also, am I the only person who finds having PIMCO being allowed to buy these securities a huge conflict of interest?
  • Chip you seem to have done a 180 from the last NCUA gaffe when you were concerned about government bailout bringing the cry from bankers for credit unions to pay taxes. I would rather be taxable and regulated by an agency that knows what they are doing instead of watching the NCUA crash and burn.
    P O in CA
  • Chip, I couldn't agree more. The same modeling theory's that put the US economy on the rocks, is now embraced to the extreme. In the first NCUA bailout plan, I was skeptical and you were very supportive. The NCUA's arrogance and "Have Gun WIll Travel" attitude has removed the sheep skin that covered the wolf. I'm afraid the CU movement has been permanently moved off it's foundation.
    Larry Hoffman
  • As always, Chip, you have eloquently voiced what so many of us have been muttering in exasperated conversations with our credit union brethren. For a movement that was rendered speechless by NCUA's actions on Friday, we are grateful to have your voice.
    Caroline Lane
  • Having PIMCO do the analysis - HUGE conflict of interest!
  • The emperror has no clothes, Excellent article. It appears that careers were broken for making AAA investments and (in the Wescorp case) with staffed NCUA offices in the building providing oversight. Thank you Chip for saying what needed to be said.
  • You covered it thoroughly. Boards and Execs of natural person CUs need to read this analysis and prepare themselves for trickle down and fallout. I'm referring my clients to read it.
    Dan Clark
  • Chip you are so right! The best outcome would have been for NCUA and the Wescorp staff to compare their analysis of the potential losses. I doubt that Wescorp or any corporate would generate "dishonest" numbers. Two sets of experts who come to different conclusions does not mean that one of them is dishonest. I regret Chairman Fryzel's choice of words. If nothing changes I see little hope for rebuilding a corporate system. I was on the Wescorp Board when the Capcorp debacle happened. Those loses drove many credit unions out of the corporate system. This is likley to drive out the rest. The NCUA needs to show us the transparency they found lacking in the corporates and let us all see how they came up with their loss estimates. I also think that all of us working together can find the leadership and Board members needed to return Wescorp and US Central to member control. I agree that NCUA should regulate and let others run these institutions. Henry
    Henry Wirz
  • Chip, you hit the nail on the head. You said what all of us have been thinking since last Friday. I don't know if I'm just being cynical but once the rest of the corpoates write off their memberhsip PIC 1, PIC 2 and membership shares in US Central how many will still be solvent? Then what would stop NCUA from waltzing in and taking them all over? Then they could create just 4 or 5 super regional corporates they would run. And how much fun would that be? It wouldn't suprise me considering from what I hear that balloon has been floated at NCUA before. Time will tell.
    Blake Strickland
  • Thanks for giving us a voice, Chip. Unfortunately, the agency is too arrogant to listen (no matter what Gigi H. has to say...) All the authority and none of the accountability -- nice gig. What's the benefit of this industry again.... Anyone??
  • I have disagreed with most of Chips comments (at least the early ones) on the NCUA's Corporate bail out plan. He seemed to laud the NCUA's plan as a very good one and just what we needed. I on the other hand have thought the NCUA's plan has sucked from the begining. However in this article I find myself very much aligned with Chip's observations. The NCUA has completely miss-managed the dislocated markets for the last 18 months, I have no confidence in any plan created or implemented by them.
  • Chip, what a terrific piece -- one I can share with my senior management and board. I'd like the NCUA to have access to this piece along with all of the comments. As the reorganization of the financial services industry is underway, it will be extremely difficult for the Congress to see any value added from the NCUA.
    Fred Healey
  • Very thought provoking. Where are the checks and balances?
  • If I didn't know better, the best thing to happen to the banks battle to eliminate credit union is NCUA's efforts to make sure we lose all of our hard earned capital forcing us to go away or become a bank. Instead of having CUs be the answer helping so many people in this terrible economy, we need to worry about losses that may occur in 10 years and reduce our ability to weather the storm that is occuring today. What happens when they stop trying to help?
    Dennis D Degenhardt
  • The argument that since NCUA's analysis cannot place a "specific" number on credit losses that this analysis is somehow irrelevant is essentially flawed. Any good forecast should be providing a range of values under different scenarios. This is called stress testing and sensitivity analysis. Until someone invents the crystal ball that allows us to see into the future this is the only way forecasts should be carried out. Of course assumptions will have to be made. Natural person credit unions do this very same thing while building their allowance for loan losses. It is becoming strikingly obvious that these corporates did not understand the securities they were purchasing. I would put forward that the conservatorship was initiated not out of NCUA's desire to "be in control" but rather to avoid any interruption in payment/liquidity services which would have far greater consequences to natural person credit unions than the NCUSIF deposit impairment. Such an interruption would signal (falsely) to credit union members that NPCU's can no longer cover their liabilities and the rest would be history.
  • This appears to be the beginning of the end of the corporate system as we know it. The timing of the takeover is suspicious at best. The regulator is just barely able to examine credit unions well so how will they effectively manage two of the largest in the country. Why would Wescorp members want to support a credit union run by the regulator, will Wescorp be acting in the best interests of its members or in the best interests of NCUA and the bureaucrats in WDC? The failure of Wescorp and/or US Central will be a self fulfilling prophecy, just as CapCorp was. Why cannot valid disagrements occur without someone having to call the other dishonest?
    Jim McPheters
  • First thanks for the insight. The honesty of the Chairman is more suspect than the honesty of the corporates. And the conflict of interest with PIMCO begs the question did they answer what the NCUA want to hear? Sort of reminds you of the "NORM" era and NCUA Staff's lack of understanding of CMOs.
  • I doubt if Mr. Filson intended to do so, but he just made a compelling argument to fold the NCUA and NCUSIF into a consolidated federal “prudential” financial institutions regulator under the U.S. Treasury. Either NCUA messed up with the conservatorship or it messed up with the prior supervision of the corporates. Either judgment doesn’t bode well for retaining a separate federal credit union regulator and insurer.
    Marvin Umholtz
  • So WaMu is suing the FDIC. Is it possible that WESCorp shareholders will have a claim against NCUA, especially in light of PIMCO's apparent conflict of interest?
  • Great article Chip - please do more. AND - by the way, where was NCUA before the problem started? Why didn't they see this coming if there job is oversight? Mmm - who wasn't doing there job?
  • Chip's article is right on the money! NCUA made a horrible judgment with CapCorp, and obviously did not learn from it. Now, the irreparable harm they have done our industry is likely to end the NCUA's reign as regulator. How fitting...under the circumstances. Perhaps we should question whether Mr. Fryzel already has a job lined up with PIMCO after his NCUA appointment ends. This is way more than a super power trip gone bad!
  • @Comment 30: The concern is not solely the fact that the NCUA used mathematical models to make a range of estimates that is the primary concern, but that they are not transparent about the assumptions underlying these models. Then, on top of that, they are forcing credit unions to write-off deposits based on these models. Even more, much of modeling is based on unrealized losses, which the NCUA has yet to justify why these kinds of funds need to be raised RIGHT NOW in conjunction with conservatorship.
  • Like Ed Callahan, there are among us public servants who walk humbly and with reserve in the exercise of their regulatory role on behalf of the public trust given to them. While making no assertion about the political leanings of the current NCUA leadership, we can pretty safely say that they are most definitely intoxicated with a world view described below by economist Thomas Sowell in this excerpt from "Presumptions of the Left." "Many on the left may protest that they do not believe in the ideas or the political systems that prevailed under Hitler, Stalin or Mao. No doubt that is true. Yet what the political left, even in democratic countries, share is the notion that knowledgeable and virtuous people like themselves have both a right and a duty to use the power of government to impose their superior knowledge and virtue on others." We can pray that these guys sober from their delusion that they actually understood what they did and are doing. I know! It is a miracle when any one in this state of mind ever rethinks their thinking once they have imbibed. We can hope! (Great work Chip!)
    Scott Vandeventer
  • The idea of funding our own analysis is intriguing to me. Get all of the corporate CUs to submit their security portfolio details and have an independent (truly independent, not an investment firm) provide their analysis. Give the NCUA, who would have to hand over the USC and Wescorp data or be considered transparancy hypocrites, a chance to step up. WIth so many retail credit unions being impacted, the funding for this should be readily available. Only then can we get a clear picture of the NCUA's intent.
  • Well said Chip. I only hope the end result of this is a realization by policymakers that the regulated, in this instance credit unions, have far more capacity to make good business decisions than do the regulators. While a "trickle down" effect is possible, so is a "trickle up" effect, whereby desparate policymakers finally wake up and ask those who have been effectively and conservatively managing their institutions to prosperity for many years, "How should you be regulated?" This is our opportunity to make our voices known to policymakers who, it is becoming increasingly clear, have no clue how to fix the mess. How about asking the institutions who have largely avoided it? Let's collaborate as an industry and let them know.
    Steve French
  • I'll avoid the obvious issues of conflict of interest, PIMCO and their interest in these types of securities at bargain basement prices, and the NCUA's issue of not wanting to be rolled into the FDIC or other body, and try to take a more constructive approach. If enough CU's were willing to provide the data, we could hire any of a number of securitiy analysis services that are commonly used for this type of work and arrive at our own values. I think most of the remaining corporates would go along with this approach, which would put the NCUA in a difficult position; emphasizing the need for transparancy, but then not providing it. The argument would likely be that this information would get out and put U S Central and WesCorp at a competitive disadvantage, which is bunk given that there is no trading in these securities anyway. Alternatively, they could provide the CUSIPs directly to the analytic firm of our choice and we would never need to take possession of the data. I write this because I saw where the new (and former??? What's up with that??) CEO of USC is considering creating a bad asset fund that would hold these assets and then be sold to non-CU investors. This would necessitate a marking-to-market of these securities, ensuring that the losses that we are trying to avoid by keeping the corporates liquid (which is why we're being pinched for assessments and premiums) would be realized since the assets would need to be moved at reduced prices. Search "Jim Nance" on the Kansas City Star website if you don't believe me ( . Is anyone inttrigued with this idea?
  • We have a regulator who believes it knows what is best for all credit unions. Members who really don't care one way or another. And very little political clout. My big worry is when our 2009 numbers come out. Members will not care or understand what a corporate CU is. All they will see is a huge loss for my CU. What is there to stop a run on the CU? Of course the NCUA may come in and put me under PCA for not having the required capital before then. Was any of this capital lost due to my having poor judgement? Yes, I listened to the NCUA and supported my coporate.