When the NCUA announced financial literacy requirements forboard members more than a year ago, the mandate sparked a lot ofanxiety prompting credit unions to seek out help and understandingof the new rules.

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

The association put together a series of three webinars coveringasset/liability management for volunteers, credit union finance andunderstanding board reports, Conner said. Within a week of theregulation coming out, the sessions were live on the association'swebsite. Interest was high with 2,100 logging in to view thewebinars by the July 2011 compliance deadline. Board memberscompleting one or more of the webinars received a certificate ofcompletion.

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

At CUANY's annual convention last year, there were a couple ofsessions designed to help board members improve their financialliteracy. Conner said those were also very well-attended andwell-received.

As for which board members seem to need financial literacy helpthe most, Conner believes it depends much more on the background ofthe individual director including the number of years they haveserved on the board and their own professional credentials. Thesefactors were more important than the size of the credit union wherethe board members serve, she added.

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

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

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

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

That can be a good thing, Conner said. No two board members arealike, and she applauds the fact the NCUA expects directors toreceive ongoing education and continue to learn about the financialmechanics of the credit union. Still, more guidance isneeded. 

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

Kenneth Welch, a partner at CliftonLarsonAllen LLP, a certifiedpublic accounting firm in Milwaukee, is also providing financialeducation to credit union directors. He agrees with Conner thatthere was initially some confusion. However, when people took alook at what was happening in the corporate credit union world, ithelped build an understanding of why it was important to makecertain everybody was familiar with board requirements andexpectations, he said. In many cases, that knowledge level islinked to the background of the individual director.

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

Welch said he fields many questions that deal regulatorychanges. Directors seem to feel they can't keep up and don't knowwhere to look, he said. On one visit, an examiner may come in andzero in on a particular area. The next might involve concentratingon something else. Welch stresses to board members that, asdirectors, they have to be confident their credit union ismeasuring, controlling and monitoring risk. They don't necessarilyneed to master all the nuts and bolts of operation but they do needto understand that their credit union's management has a riskfocus. As for the NCUA's director financial education mandates,Welch said he thinks they are a reaction to the corporate systemfailures.

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

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

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

Harrington believes the amount of financial literacy boardmembers have achieved depends on the credit union's CEO. Some aregood teachers while others would just as soon not deal with a boardthat has become too savvy. Board members at large credit unionsenjoy an advantage because of the more extensive resourcesavailable, he said. Some directors are more receptive than othersand willing to take advantage of those resources despite the assetsize of the credit union.

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

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

“Some directors have been on the board a very long time, and thecredit union they joined was simple compared to today's creditunion,” Harrington offered. “They didn't always keep up theirfinancial knowledge with the changes in complexity. It's essentialfor board members to understand financials. Being on the governingbody requires you to understand financials.”

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