After our print deadline for the May 4 issue in which we ran this editor’s column in Credit Union Times, the NCUA’s assistant director of public affairs, David Small, completed gathering up the responses. I’m including them here verbatim for your information. I’ve also added my two cents as editor’s notes. I invite you to share your thoughts on the questions and answers.
Cooke: In our recent story about Vensure (and has happened with St. Paul’s Croatian and others over the last couple of years) the agency said NCUA examiners only “validate” call reports, and don’t necessarily scrutinize them beyond making sure everything adds up. Are examiners encouraged to flag something that doesn’t meet the smell test? For example in Vensure’s case the $2.7M CU took in nearly $2M in fees and St. Paul’s reported zero delinquencies throughout 2010, which was a particularly rough year.
If examiners make sure the ledgers add up but do not read into the story they could be telling, isn’t that a safety and soundness issue? Is NCUA trusting CUs to report everything accurately themselves? Is there double checking involved?
Small: NCUA does not discuss individual cases.
Regarding the process though, Examiners validate call reports during the quarterly call report cycle. In that validation, examiners must both look at the numbers and look behind the numbers. Such in-depth background determines whether credit unions are operating safely and soundly. Examinations review trends, current financial information, and operational aspects of the credit union. Both quantitative data and qualitative data shows examiners the actual financial condition of the credit union.
The validation process uses a variety of internal systems to determine the reasonableness of the call report. [Editor’s Note: So zero delinquencies and extremely high volume fees vis-à-vis assets is reasonable?] The systems include a series of edits, historical warnings and a cycle-to-cycle comparison process. This portion of the quarterly review is about the data. They then assess the risks at the credit union on a forward-looking basis to look at what the data says. The conclusions they reach determine whether or not the existing supervision plan for the credit union needs to be altered or changed.
If they find deficiencies, they work with the credit union to resolve those issues, ensuring that adequate due process is followed.
Cooke: Has/will anyone at the agency been fired and/or punished in some way as a result of these missteps during the crisis time? If so, how many?
Small: NCUA does not respond to questions about individual personnel issues. [Editor’s Note: I didn’t ask who was fired and/or punished.]
Cooke: Is examiner training being tweaked in light of these and other instances over the last couple of years?
Small: NCUA seeks to learn from the past. Recommendations from NCUA’s IG Material Loss Reviews and Capping Report will improve examiner training and internal control processes.
Cooke: Had the agency become complacent in the good years and less prepared for the economic crisis?
Small: Eighteen months ago, NCUA simply did not have the resources to do our job effectively. The entire American financial system was at risk; yet NCUA actually had a smaller staff in 2009 than we did in the year 2000. The untold story of the last 18 months is how NCUA prevented another crisis. Several, billion-dollar consumer credit unions were on the verge of failing and NCUA reacted creatively. NCUA quickly tailored remedies to the unique situation of each CAMEL 4 credit union in danger of collapse.
Chairman Matz is on record regarding this at: http://www.ncua.gov/GenInfo/Members/Matz/speeches/11-0228MatzSpeechtoCUNA_GAC.pdf
Cooke: Will having an economist on board at the agency help to get ahead of economic downturns in the future?
Small: It is natural for depositories to incur higher losses and lower demand during economic downturns. The Office of the Chief Economist at NCUA is focused on monitoring macroeconomic and microeconomic risks and leveraging economic tools and analysis to support policy development. NCUA believes enhancing our level of economic analysis and outlook will help us mitigate issues in the future.