Hyland Holds Forth on Corporates, MBL and Other Issues Facing CUs
Credit Union Times: Given your experience with and knowledge of the corporates, are there certain must have components of the rules that are going to be proposed later this year?
Gigi Hyland: There are two key issues. Capital-what's the right amount? What's the right mix? These have been issues for years. We want to have them do it in a way that aligns their capital requirements with those of other financial institutions under Basel. We are in a different climate and creating an artificial timetable for capitalizing corporates isn't appropriate. But we want to be sure that what happened in the past year doesn't happen again. But we don't want to restrict corporates so they can't do what they are intended to. The credit union system must decide what to do with the corporates. That is why we hope when we issue the proposed rules, we hope there will be plenty of comments. The changes have the potential to dramatically reshape the credit union system
CU Times: How has your experience at the corporates shaped the approach you take as a regulator?
Hyland: It helps you understand things from a 360-degree perspective. Having worked at a corporate, I know how important a role they function in areas such as payment systems. I have a realistic take on the issue. I know you can have a lot of safety and soundness protections-and they are very important-but if you restrict the corporates' ability to do their job, that's not good.
CU Times: When you worked at the corporate, what did you wish regulators knew? And what frustrated you about regulations?
Hyland: BSA was always a challenge. You always wanted to make it work and comply with it, but because it is very comprehensive, you wanted to find a way to not spend all of your time on it.
CU Times: Anything surprise you in the comments you received in response to the advanced notice of proposed rulemaking on the corporates?
Hyland: Not too much. Most of the comments were in keeping with what I was hearing when I visited credit unions and spoke to people. Of course, there was a big difference in the tone of the comments before and after the conservatorships of U.S. Central and Wescorp.
CU Times: Even if the economy improves, credit unions are still likely to have rough times in the next few months and maybe more, what can the agency do to help them through this period?
Hyland: Improve our communication and explain things more. We can do more to explain things about the expectations we have in examinations. On member business loans, what are examiners looking for? I am hosting a Webinar on Nov. 18 on the subject. It will focus on the regulations and on what some of the best practices are out there. We aren't anti-MBLs, but we want to give guidance. This benefits the agency and helps credit unions.
CU Times: Does the agency want more credit unions to get involved in member business lending?
Hyland: Not necessarily, but we want those that do it to recognize the risks and benefits involved.
CU Times: What are you hearing from examiners about the subject?
Hyland: Some credit unions got into MBLs too quickly and did too much. You have to do it methodically and shift your model to accommodate risk.
CU Times: Both you and Chairman Matz spoke about revamping the rules on community chartering during your recent NAFCU speeches. Do you hear much about that from credit unions? What changes would you like to see?
Hyland: I used to hear lots about it, but now I hear more about the corporates. We issued a rule designed to improve community chartering in 2007 and that kind of fell flat. We want to make the process easier and less subjective.
CU Times: Last year, Banking Committee Chairman Christopher Dodd said he felt credit unions were doing too much and engaging in mission creep and being like banks. Do you agree?
Hyland: No. The NCUA is tenacious about adhering to and enforcing the statutes about what credit unions should be. But I think it's not realistic to see credit unions as just being mom and pop enterprises because you want to be sure that they have to the tools to respond to consumer needs. But issues such as member business lending and others show that there continues to be a debate about what does the future of credit unions look like.
CU Times: There have been a lot of mergers recently, both for economies of scale and because of the economy. Do you see this trend continuing and is there something the NCUA can do to improve the process?
Hyland: There are peaks and valleys depending on the economy. It is imperative that we try to help credit unions facing a difficult time to try to weather the storm if that is at all possible. But we also should see about looking at whether there need to be changes in the model for dealing with purchases and assumptions. Our staff is looking into it to see what may be appropriate. There might be ways, for example, to change and broaden the mix of credit unions that we seek when looking for potential credit unions that would be potential purchasers of the troubled credit union.
CU Times: Any other thoughts on ways to help troubled credit unions?
Hyland: Before PCA. the agency could sometimes be more creative in the way it helped credit unions. But we still have flexibility and are constantly working to align the policy and practice. We also have to always recognize the difference between a credit union that takes on too much risk or had a flawed business model and those that did things right and are caught in a perfect storm.
CU Times: In your talks with credit union folks, have you sensed a difference in their attitude recently as some of the problems have been solved?
Hyland: The anger has dissipated slightly. The fear of the unknown is what I am sensing.
CU Times: Take us inside the meetings the board had during some of the most tense moments of the last year. Without breaching the confidentiality of executive sessions, describe what the mood was like?
Hyland: When there was a crisis, everybody came together to lend their expertise for the betterment of credit unions. You saw a dynamic and energy that I hadn't seen. That's because we had no choice, and there was no chance to form a committee.