Credit Unions Rally To NCUA’s Side. Will This Prove A Good Decision?

Free from congressional oversight, how will the still-independent NCUA answer calls for its own financial answerability?

CUNA and NAFCU sent credit unions exuberant victory messages last week after the House left the NCUA out of an appropriations bill that would have subjected the regulator’s annual budget to congressional oversight, including potential public hearings.

The trade groups and leagues called on credit unions and lawmakers to rally to the NCUA’s side, to speak out for their overseer’s independence. The result: the House agreed to keep the NCUA’s status as an independent agency in charge of its own financial decisions.

The NCUA for multiple reasons took no public stand, although it has frequently resisted efforts to make itself more open to the industry it’s supposed to serve. ContentMiddleAd

The irony of credit unions’ support cannot be lost on the trade groups that have been advocating for nearly a decade for a more visible budgetary process that would include public hearings and supporting details on key issues such as the Overhead Transfer Rate.

Encouragingly, NCUA chair Mark McWatters and board member Rick Metsger have become increasingly responsive to requests to solicit credit union points of view before making decisions.

This openness is a promising sign of the current board’s interest in learning credit unions’ opinions about NCUA actions that have significant consequences for their members. These board requests for comments are not rule making and therefore, technically, not required. But it is responsive and responsible government to learn as much as possible about issues from those who will be burdened with carrying them out.

A New Era Of Mutual Respect Or Getting Stiffed?

The removal of the NCUA’s budget from the congressional appropriations process was described in the press as a major advocacy victory. Importantly, it reinforced one of the seven cooperative principles, autonomy and independence.

Now that the credit union movement has gone to bat for the NCUA’s independence, is the board able to take the next step to weigh carefully credit unions’ views on agency decisions?

NCUA as a government agency is given authority in return for answerability to its credit union constituents. As an independent agency, the NCUA continues to be exempt from almost all traditional forms of legislative oversight, including its own budget, a cost credit unions bear.

The NCUA’s first test of its constituent responsiveness will be soon. Will the board merge the TCCUSF into the NCUSIF? There seems to be a widespread consensus this makes sense to expedite the return to credit unions of billions they expensed in direct support of NCUA’s corporate stabilization plan from 2009 to the current day.

The NCUA did not seek credit unions’ views when assessing $4.8 billion in two TCCUSF premiums or in the additional expenditures of billions to implement the plan. Ironically today, the NCUA is asking credit unions whether they should now refund the plan’s surplus.

The regulator’s staff recommends the NCUSIF, not credit unions, retain almost two-thirds of the estimated $2.4 billion initial TCCUSF cash surplus at December 2017. According to the staff’s proposal, the NCUSIF needs most of these held-back funds to pay its annual operating expenses or hypothetical future contingencies.

This would divert money raised for one purpose to a completely separate agency responsibility. It would set a pattern for the NCUA to continue to retain TCCUSF recoveries, off the top, to spend on itself instead of returning the funds to members.

This initial available surplus is less than half of the $5 billion total NCUA staff estimates will be available to AME receiver certificate holders and credit unions who paid TCCUSF premiums. And don’t forget, outside attorneys already collected their $1 billion cut.

Also from Chip Filson: Don’t Let The NCUA Take Your Members’ Millions (Again)

In this first decision of several to come later this year, the NCUA’s board members will be asked to break with previous bureaucratic practices imposed during the Great Recession and instead base their decisions on respect for the views of the governed.

If NCUA staff believes the NCUSIF needs more revenue beyond its current balances, then the proper process is to go to the board and credit unions to make this case on its merits. The current staff rationales to hold back recoveries are supported by neither facts nor logic. Instead the proposal seems like an opportunistic self-appropriation by insiders.

This past week, credit unions took a good first step in upholding the cooperative principle of independence of their regulatory system.

Will the NCUA’s board now have the courage to do the right thing by returning in full all TCCUSF recoveries? Will it open a new chapter of mutual respect between credit unions and their regulator? Or, will the board choose what government always seems to do when a surplus arises, and spend it?

The comment period for the merger has passed. Now it’s up to McWatters and Metsger. Let’s hope they do the right thing.

What Credit Unions Have To Say

The comment period for the NCUA’s proposed merger of the Temporary Corporate Credit Union Stabilization Fund into the National Credit Union Share Insurance Fund has passed.

Click here to read Callahan chair Chip Filson’s comment letter.

Click here to read all the letters posted by the NCUA so far.

Click here to download NCUSIF Financial Performance Data (2008-2016).

Click here to download Chip Filson’s presentation, Merging The TCCUSIF with the NCUSIF: Doing The Right Thing, The Right Way.

Check out excerpts from letters below:

Cutler Dawson, President/CEO
Navy Federal Credit Union

Vienna, VA

Sept. 1, 2017

We support returning excess TCCUSF premiums to credit unions . . . these funds came from credit union members and the funds still belong to credit union members, not the TCCUSF, not the SIF and not NCUA.

NCUA should not co-mingle the closure of the TCCUSF with an increase in the equity ratio of the SIF . . . NCUA’s approach is tantamount to levying a SIF premium on credit unions above the statutory limit of 1.3% . . . Raising the NOL over 1.30% via a process that is effectively an assessment violates both the intent of Congress and ignores other tools available to NCUA to manage the equity ratio of the SIF.

Bruce C. Thomas, President
Calcasieu Teachers & Employees Credit Union

Lake Charles, LA

Aug. 11, 2017

We are a very small credit union and these funds are very important to the success and survival . . . We have served our members for over 65 years . . . Your decision that we were required to send (funds) to NCUA caused our credit union to have its first yearly loss ever. At the time of the corporate closures we had already requested our capital back nine months earlier. We still were mandated to keep our funds with the Corporate for three more months to complete a one-year notice to withdraw . . . This part of their bylaws cost us $321,167.62 plus the extra stabilizations that were required by NCUA.

We have seen several of our fellow small credit unions merge with larger credit unions since . . . it was the small credit unions that took the biggest hits with the entire event . . . Small credit unions were required to put 10% of their assets in the Corporate while large credit unions had a cap of $1,000,000. The percentage of our initial loss was much greater than those of greater size . . . Please read this comment at your board meeting and notify me in writing that it did occur.

Christine L. Petro, CEO
Chabot FCU

Dublin, CA

Aug. 29, 2017

The member-owners of Chabot FCU paid $393,926 in premiums to fund the stabilization fund and lost our $296,955 investment in WesCorp-all told three years’ of average net income! We are anxious to . . . put our members’ capital back to work. Do not raise the NOL of the NCUSIF. History has proven there’s no need to do so. . . maintain TCCUSIF income and future recoveries in separate general ledger accounts to make sure the recoveries and income are paid out to their rightful owners. We look forward to a speedy return of what rightfully belongs back to our members. . .

John P. Cassidy, CFO
Alaska USA FCU

Anchorage, AK

Aug. 15, 2017

Alaska USA, a federally chartered credit union with $6.9 billion in assets serves over 628,000 members. . . Alaska USA paid over $23 million in stabilization fund assessments and lost over $4 million in depleted corporate capital. As a result, Alaska USA believes that the principal objective of the corporate resolution settlement should be to return every residual dollar realized from the liquidation of the legacy assets to credit unions. . .

The NCUA’s proposal to merge the two funds includes the absorption of part of the Stabilization Fund is a de facto NCUSIF premium assessment. . . NCUA should ensure that all of the residual funds . . . are returned to credit unions that funded the corporate stabilization plan and depleted corporate capital.

Jim Blaine, CEO (retired)
State Employees’ Credit Union

Raleigh, NC

Aug. 30, 2017

In considering this proposal, one distrustful thoughts keeps recurring: Too clever by half! …

It is unclear in this proposal in the absence of the TCCUSF closure exactly where the NCUA board believes the current NOL should be set. In an open dialogue with credit unions, it is important that NCUA state its case for determining the NOL of the NCUSIF going forward-in the absence of the TCCUSF …

That too clever by half thought arises here as it appears that the contemporaneous closure of the TCCUSF is intended by staff to purposefully obfuscated any transparent discussion of the resetting of the NOL and is intended perhaps to also mask other substantial structural problems that currently exist with the NCUSIF …

A rolling one-year forecast is a far more reliable model for maintaining the Fund above the 1.20% level, without fail, than the gobbled model described in the proposal and then immediately and rightfully disclaimed by the authors (see page 25 for disclaimers the naked truth is that the modeling princelings know they wear no clothes!)

William J. Burke, CEO
Day Air Credit Union

Dayton, Ohio

Aug. 29, 2017

Day Air is state chartered … with $375 million in assets serving 42,000 members in the Dayton, Ohio area.

We strongly support the closure of the TCCUSF and the subsequent return of special assessments to credit unions. . .as soon as possible.

We strongly disagree however with the proposal to increase the normal operating level of the NCUSIF to 1.39%. the fund has operated within a level of 1.20% to 1.30% for many years. . . The credit union industry is stronger now than perhaps it ever was. . .The current NCUSIF funding level was sufficient to weather the storm of the Great Recession and nothing appears on the horizon to indicated that additional funding is necessary … Consideration of the adequacy of the NCUSIF funding levels should be completely removed from any decision regarding the TCCUSF.

September 19, 2017

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