CAMEL Disclosures Would Cause More Panic Among Managers Than Public
The Federal Reserve Bank of San Francisco’s 2011 Annual Report featured an essay written by the bank’s president/CEO, John C. Williams. The essay, titled Opening the Temple, focused on the Fed’s gradual move to greater transparency.
As I read the essay, one particular paragraph struck a chord. In a section called “Financial Stability,” Mr. Williams makes the following statement: “...the Fed has become more open regarding its assessments of the financial health of the largest banks in the country. Traditionally, all supervisory information about banks was kept secret. ... In early 2009, the Fed, working with other regulatory agencies, published the results of the first stress tests of the largest banks. These tests gave the public a better understanding of the financial health of each of the largest banks, reducing uncertainty and fear. In March of this year, the Federal Reserve publicly released the results of its latest stress tests of the largest banks. Publication of the stress test results has proven to strengthen public confidence in the banking system.”
As I read these words, I could not help but consider the recent back-and-forth between the National Credit Union Administration, State Employees' Credit Union of North Carolina, the North Carolina state regulator, and in general all North Carolina state-chartered credit unions over SECU’s release of its CAMEL score.
While the Federal Reserve works to facilitate and highlight greater openness and access to information, the NCUA seems bound and determined to head in the other direction. I know a number of people who work at the NCUA. There are very good people trying to do the best job they can serving our industry. The problem, however, is that the institution’s policies they are tasked with carrying out facilitate not openness and transparency, but isolation and opacity.
It is time for the NCUA to follow the Fed’s lead and embrace a general policy of transparency, in particular with regard to the sharing of information pertaining to credit union health – including CAMEL scores and other metrics used by examiners to gauge institutional performance and compliance. If this occurs, even if only at the level of billion-dollar plus credit unions, I believe we will see in the credit union community what Mr. Williams’s comments suggest has happened in the banking sector: a strengthened public confidence in the credit union community.
Recent commentary from the NCUA suggests that the release of such data would undermine public confidence, inspiring panic in the general public and elevated risk to the share insurance fund. I think we might see some panic, but not in the general public. Rather, I believe we would see panic in the executive offices of underperforming credit unions. Under-performing credit unions would be forced to define and execute better strategy, strategy with more intelligent risk mitigation and contingency planning than what some credit unions have engaged in in past years. Nothing like the threat of airing dirty laundry to move people to clean up their act.
While better planning at credit unions would be a valuable outcome of transparency, the better outcome would be one of more-consistent, rules-based exams and disciplinary actions. Stories abound from credit union leaders of examination inconsistency from exam to exam and from institution to institution. The same threat of public disclosure that would serve to prompt credit unions to adopt better leadership discipline would also serve to prompt consistency in the assessment of credit union compliance.
In the section following his commentary on the public good served by releasing bank stress test results, Williams touches on governance at the Fed. He says, “Accountability and openness cannot just be about the policy decisions we make. They must also be about how we operate as an organization.”
I believe the NCUA has made strides with regard to the first sentence. It is the second sentence that causes concern. From various agency speeches, listening tours and the like, we see the NCUA trying to make decisions based on accountability and openness. Until that philosophy governs the agency’s operations, however, it is just empty rhetoric.
The Fed began its march to transparency 18 years ago with its first release of a statement regarding FOMC policy decisions. The path to transparency has been slow, and as Williams adds, not always voluntary -- but it remains a path worth taking if for no other reason than that we are in the information age. Information is destined to be free and in the public domain, often without the consent of those who hold that information.
Far better for the Fed, and the NCUA, to recognize the shift and work to define not if, but how to share the results of the public’s data.
Tom Glatt Jr. is a credit union consultant in Wilmington, N.C.