Editor’s Column: Directors’ Frustrations Cloud Hawaiian Sky
Amid the sun, sand and waves on the Wailea Beach of Maui, something evil lurked last week at The Paragon Group’s Volunteer Leadership Conference. It wasn’t far below the serene and relaxed surface and without much effort it managed to swallow the ballroom whole. That beast was palpable in the air. That menace to credit unions is pure frustration.
Perhaps because volunteers are not always as attuned to industry politics as the professionals, unadulterated passion ruled the day. Attendees were spitting bullets and seemed ready to pummel various matters, and a few people, that got in the way of slaying the beast.
Students in the session regarding financial essentials for volunteers were riled at the very thought that the NCUA was requiring them to obtain basic understanding of credit union balance sheets. Attendees seemed in agreement that training was important, but to have the NCUA demand it raised their hackles. While the regulation and accompanying letter to federal credit unions outlined general duties of a director, there were no pop quizzes or testing involved as some had feared.
I have a pretty laissez-faire attitude when it comes to government intervention in business and life in general. However, setting this bare minimum standard was imperative following the economic meltdown. The regulation really didn’t add new responsibilities for directors that weren’t already covered by their fiduciary duty. What it did was more clearly define what constituted their responsibilities.
The key piece to remember is that the requirements are not only there to tell you what to do.
Credit union directors are the strength of the industry when they are willing to keep educated and up-to-date with their credit union and the financial services industry in general.
Improperly trained directors are the downfall of the industry. Yes, there was a time when all you needed to qualify as a director was to be a member. This cannot and should not be the case in the 21st century.
In the last decade, we’ve experienced heightened awareness against terrorist financing in the form of tighter Bank Secrecy Act oversight, the evolution of home banking and the birth of mobile banking. Because Gen X is so small relative to the boomers and Gen Y, demographics and expected financial behaviors of your membership are changing rapidly. Studying credit union financials through this broader lens is essential, and I don’t want a credit union board member who will not meet this standard. Should the NCUA require it? No, but the membership through its nominating committee should. That is your fiduciary duty.
Another frustration that was aired and I whole-heartedly agree with was complainants about the inconsistency across examinations. One instance was shared by a credit union director where examiners told a credit union to form a committee to oversee all the loans running through the credit union, and the next year the examiners asked why the credit union was doing that.
This type of about face is a waste of credit union time and resources. Frustration at what is perceived as busy work can make a competent, dedicated credit union directors throw their hands up in the air and wonder, what am I really doing with my time when the regulator does not appear to have a handle on what it expects from credit unions?
Representatives from a California credit union explained that the NCUA and state examiner conclusions didn’t jibe; the state examiners found this credit union in better standing than did the NCUA. When all three parties sat down to discuss the matter, the two regulators moved farther apart.
Publicly, we’re seeing what can happen when the state and federal regulators go head-to-head in North Carolina. After SECU revealed its CAMEL score, the NCUA decided that it cannot rely upon the examinations of the North Carolina regulators and will now conduct its own examination, which puts an additional expense on the state-chartered credit unions there. The NCUA argues that the CAMEL ratings are confidential and releasing them could threaten all credit unions and the NCUSIF, but the state regulator insists she has authority under state law to permit their release. While I see both sides of the argument, credit union financials are already available publicly from the NCUA’s own website as well as in annual reports. Releasing CAMEL ratings would do no more harm than the financials being available. Perhaps it is the NCUA that doesn’t want its work under scrutiny rather than that of the credit unions. That could be one nasty beast to battle.