Credit Union Times: What do you think the financial services landscape will look like after it all shakes down?
Edward Yingling: I don't think anybody has any idea. If you list all the issues, not even counting the possibility of significant changes related to credit unions, which I guess we'll get into, what may happen is an attempt to do 10 Gramm-Leach-Blileys [the last major financial services legislation, which was passed in 1999] at one time. We are talking about the possibility of legislative changes on a scale of what happened during the 1930s.
CU Times: Speaking of the regulatory structure, our readers are concerned about being lumped in with banks and others under one big regulator. What do you think is the likelihood of that happening, and what do you think of having banks and credit unions under the same regulator?
Yingling: Frankly, they have so many difficult issues to deal with, and the uberregulator, which was part of the Treasury Blueprint, is very much in the past. The idea came from what they had in England, and there is no comparison to what was going on in England. I don't think the English model is something we should look at; it hasn't worked and I believe there is a recognition that it hasn't worked. They are going to create a systemic regulator, an oversight regulator, and there will be some effort to merge agencies but I don't see them moving to one regulator.
There is one other area that is a possibility-that is a consumer regulator. That could regulate all financial services in the consumer area. We are very concerned about this concept, and we don't like it. If that were the case, you'd have a consumer regulator that regulates deposit products, investment products and lending products in a common fashion. Our biggest concern there is that it might be hard to create an agency that effectively balances safety and soundness issues and consumer issues.
CU Times: There is a tendency in Congress to respond to a crisis by regulating, sometimes overregulating. How do you and other financial services providers persuade lawmakers to slow things down? Do you expect to work with other providers, like the credit unions, on some issues?
Yingling: There are some areas of real common interest; one is to ensure the safety and soundness of insured institutions. There are instances on both sides when institutions have gotten out in front and thought they could gain by criticizing the safety and soundness of other institutions and I think the NCUA has been responsive when we've raised that question. It's important that both sides don't question the safety and soundness of each other in this difficult time.
A second area is that we are both in a period in which we face unnecessary regulatory burdens, where the government identifies a target and instead of using a rifle uses a shotgun. A simple example of that is that clearly there's going to be more regulation of mortgage brokers, but that doesn't need to apply to regulated financial institutions, especially those that didn't make subprime loans.
A third area where we have common ground is accounting policy. I recently testified before a House committee, and I know that's something the credit unions have been interested in and, in fact, they contacted our office. I've been beating the drum on that for a while, and I used two examples. I used the home loan banks and the [corporate] credit union situation. It is my belief that many of those losses were unnecessary. So there are a lot of areas where insured institutions can work together.
And on the mark to market, that potential hit to the credit union industry is huge. There is a provision in the House bill to give more time to get the [National Credit Union Share Insurance] Fund back, and we didn't object.
CU Times: Credit unions and banks have had a love-hate relationship, sometimes friends and sometimes foes.
Yingling: Mostly foes. We have great respect for the trade associations in the credit union business, but for the most part, we fight. And we do it in a professional way, and we can find common ground, on bankruptcy and the cram-down provision we work together.
CU Times: One of the issues that has come up, and the Senate Banking Committee chairman has used this phrase "mission creep" to describe the trend of some credit unions acting more like banks. Do you agree with this assessment, and what steps will the ABA be taking to combat that? Especially in areas such as the tax-exempt status of credit unions? Will the tax-exempt question come up again?
Yingling: Oh, yeah. I think the perception of credit unions in Washington has changed dramatically in the last three or four years. And it is basically a growing recognition that some credit unions-not all-are doing the same things that banks do. That's why we see the language change out of CUNA about what was the basis for the tax exemption. Originally it was the common bond and then they decided to say "it's our organizational structure." The problem with that is that the organizational structure, which is basically the cooperative structure, is subject to taxation in other industries and is basically the same as a mutual bank.
While in Congress credit unions have a great deal of goodwill, still there is a growing perception that some in the industry are tax-exempt mutual banks and that is a big problem going forward. And there are some that stand out, especially those that are aggressive in their advertising and aggressive in serving huge areas and aggressive in their lending patterns. You see them building country clubs and condos in Florida. Those are examples that Congress notices.
CU Times: Do you think the tax-exempt fight is going to come sooner rather than later?
Yingling: There will be a new landscape for the entire financial services industry. And I know it is a big issue in the credit union industry about whether to be involved in TARP or not be, and I'm not saying this to throw any stones because both industries have failures. You [credit unions] are having failures; your share insurance fund is under stress just like the FDIC is under stress. But the degree to which you access TARP or TARP-like funds will change the perception of credit unions, but we don't know how. I know there is debate within the industry and as I follow that debate from afar, I know there is reason to be concerned about whether it changes the nature of the view of credit unions.
CU Times: How would you assess the way the Fed, the FDIC and the NCUA have performed their regulatory functions?
Yingling: I am most concerned about the Congress. But there is plenty of anecdotal evidence of individual cases of regulators telling banks to build capital reserves and not make certain types of loans when Congress is telling them to lend more.
But our regulators have a history of dealing with hurricanes. I'm not sure the NCUA has the same history, so it will be interesting to see how it handles it.
CU Times: You've been around banking for a long time and at the ABA for 25 years and your father was once president of the ABA. How does this compare with other periods?
Yingling: We went through problems in the '80s and in some ways, the politics are becoming similar, and the overreaction is becoming similar. Now it's a lot more and a lot broader. Then it was pretty much a lending problem, now it is touching every corner of the industry. There has never been an issue before Congress as broad and as complicated as this one. You have to reorganize the entire housing financial structure. What are they going to do with the SEC after Madoff? What will they do with the rating industries? And they have to coordinate some things internationally.
CU Times: What caused all these problems? Was it regulators not doing their jobs? Was it natural market forces? Was it some financial institutions overreaching?
Yingling: The consensus is that the kindling was done by the unregulated mortgage brokers. They had no skin in the game and packaged loans and sold them to investors who didn't know what they were buying. The other wood that went on the fire was leverage from Wall Street and other financial centers around the world. It's been made worse by policy mistakes, and the leading one is mark-to-market accounting. Only now, people are realizing it made the problems worse than they had to be and was a catalyst for the problems with the corporate credit unions. I mentioned this when I testified, and [Financial Services Committee Chairman] Barney Frank said he was pleased to see me standing up for the credit unions.