When the NCUA announced financial literacy requirements for board members more than a year ago, the mandate sparked a lot of anxiety prompting credit unions to seek out help and understanding of the new rules.

“There was a lot of fear,” said Tracy Conner, vice president of member relations at the Credit Union Association of New York. “Exactly how was NCUA going to test their knowledge? Of course, we tried to get some of those answers from NCUA, and there really weren't very firm parameters around this.”

The association put together a series of three webinars covering asset/liability management for volunteers, credit union finance and understanding board reports, Conner said. Within a week of the regulation coming out, the sessions were live on the association's website. Interest was high with 2,100 logging in to view the webinars by the July 2011 compliance deadline. Board members completing one or more of the webinars received a certificate of completion.

“It wasn't necessarily a certificate of achievement on what they had learned, because we didn't know how NCUA was going to test them,” Conner said. “But we had very favorable response from our credit unions for making those webinars available.”

At CUANY's annual convention last year, there were a couple of sessions designed to help board members improve their financial literacy. Conner said those were also very well-attended and well-received.

As for which board members seem to need financial literacy help the most, Conner believes it depends much more on the background of the individual director including the number of years they have served on the board and their own professional credentials. These factors were more important than the size of the credit union where the board members serve, she added.

“I think it was a good regulation that caused credit unions to look at something they probably should have been concerned about all along. It kind of formalized it for them,” Conner said.

Over the past few months, there's been much more concern about what the NCUA will be looking for with regard to interest rate risk and handling asset/liability management responsibilities, Conner noticed. While the webinars and other information have deepened their basic understanding, she thinks there's a general question out there of what will NCUA want next and how the leagues and credit unions respond should.That emphasis on asset/liability management is raising the issue of whether or not it's always smart for a credit union to grow, Conner said.

While growth may attract new shares, it's a challenge to write loans, she pointed out. Keeping those shares in the investment portfolio may not be what the credit union wants to do. As a result, one of the main questions is how much growth is too much growth, some have asked.

Meanwhile, Conner sees it as a positive move that the NCUA wants to confirm board members have certain basic financial knowledge. The critical task is developing the right type of education and determining whether a board member has reached a specific level of achievement, training leaders have said. At this point, the NCUA has left a lot of options open.

That can be a good thing, Conner said. No two board members are alike, and she applauds the fact the NCUA expects directors to receive ongoing education and continue to learn about the financial mechanics of the credit union. Still, more guidance is needed.

“It would be welcomed if the NCUA were to provide more specifics,” Conner suggested. “I also don't know if there really is any testing of whether credit unions are complying or not. I do know credit unions are taking it seriously.”

Kenneth Welch, a partner at CliftonLarsonAllen LLP, a certified public accounting firm in Milwaukee, is also providing financial education to credit union directors. He agrees with Conner that there was initially some confusion. However, when people took a look at what was happening in the corporate credit union world, it helped build an understanding of why it was important to make certain everybody was familiar with board requirements and expectations, he said. In many cases, that knowledge level is linked to the background of the individual director.

“While large credit unions have more capacity and ability to train their directors, it depends on how long that director has been involved,” Welch said. “There are some directors on very small credit unions who are very knowledgeable. I don't know that size matters directly. I will say size matters in terms of complexity, so the directors at large credit unions need to be informed about more and varied interactions.”

Welch said he fields many questions that deal regulatory changes. Directors seem to feel they can't keep up and don't know where to look, he said. On one visit, an examiner may come in and zero in on a particular area. The next might involve concentrating on something else. Welch stresses to board members that, as directors, they have to be confident their credit union is measuring, controlling and monitoring risk. They don't necessarily need to master all the nuts and bolts of operation but they do need to understand that their credit union's management has a risk focus. As for the NCUA's director financial education mandates, Welch said he thinks they are a reaction to the corporate system failures.

“It's common sense,” he explained. “There's nothing in that regulation that a volunteer can't do or a level of expectation they can't get to.”

Tim Harrington, president of Team Resources, a strategic planning and training firm in Tucson, Ariz., is another consultant providing financial education to directors. The reaction to the NCUA mandate has been all over the board, he discovered.

“Some view it as just one more regulation, and they're frustrated with what they see as too much regulation. Others have simply accepted it. Still, others have been enthusiastic about it and see the benefit of encouraging boards to learn as much as they can.”

Harrington believes the amount of financial literacy board members have achieved depends on the credit union's CEO. Some are good teachers while others would just as soon not deal with a board that has become too savvy. Board members at large credit unions enjoy an advantage because of the more extensive resources available, he said. Some directors are more receptive than others and willing to take advantage of those resources despite the asset size of the credit union.

“Directors have had to learn that in their desire to give a good return to their members, some boards have kept their deposit rates too high for too long,” Harrington said. “That has resulted in rapid growth that has caused instability in certain credit unions. Those rate decisions impact portfolio growth and board members don't always get the implications of that.”

As for regulations, Harrington said there's a lack of good information at the board level. Whether it's a $5 billion credit union or a $5 million credit union, neither one has good regulatory information for directors, he noticed.Overall, he sees the NCUA's financial literacy requirements as a very strong move in the direction.

“Some directors have been on the board a very long time, and the credit union they joined was simple compared to today's credit union,” Harrington offered. “They didn't always keep up their financial knowledge with the changes in complexity. It's essential for board members to understand financials. Being on the governing body requires you to understand financials.”

Harrington said credit unions shouldn't view the adjustment as a one size fits all model. “You determine what you need and create a policy for it. You make sure your directors meet your policy. Then the [regulators] tell you if the policy is adequate or not.”

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Fears Aside, Boards Ease Into NCUA&rsquo;s Literacy Rules

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