Failure happens, often again and again. When the nation was beset with a huge wave of savings and loan failures in the late 1980s–747 institutions were shuttered by regulators–lawmakers and regulators assured the public it had taken steps to prevent this from happening again. And then the recent more expensive and more devastating banking crisis threatened to push the planet into a global depression.
This history is why Fred Becker, CEO of NAFCU, said, "There is no silver bullet to prevent future failures of corporate credit unions."
Regulators are taking measures to attempt to prevent future corporate credit union collapses, but the reality is that it probably is impossible to create perfect protections. "You cannot take all the risk out of a corporate credit union. It’s just not possible," said Dave Chatfield, chair of the corporate realignment task force, which is chiefly concerned with the future of Western Bridge. "What you can do is try to make sure the risks will be well-managed."
That regulators will require significant risk mitigation is beyond question. "Regulators definitely will force corporates to keep their risks under control," said Paul Schaus, president of CCG Catalyst, a Phoenix-based consulting firm.
One way to get there, said Joe Waites, CEO of CECO Management Consultants, a Georgia-based adviser to financial institutions including credit unions, is to prevent corporates from overconcentration in one class of assets. "Mainly they got themselves in trouble by having too much invested in mortgage backed securities."
Asset diversification may well be mandated by regulators, but that alone will not stop future corporates from going under. "It’s up to the members to do their own watching," said Becker.
Becker said a factor in the collapse of various corporates was the passivity of members who assumed that somebody else–regulators, boards, somebody–was watching the store. "Before, everybody trusted everybody else to watch. That did not work," said Becker. "What we know now is that everybody has to do their own watching."
Bottom line, said Becker, there is no blaming others. "Natural person credit unions have to do their own watching of their corporates. That’s how to prevent future meltdowns."