Editor's Column: The Face of 21st Century of Regulation
The debate over the fate of small credit unions continued on CUinsight’s blog last week with Henry Meier of the Credit Union Association of New York interjecting that “the days of treating your examiner as your de facto compliance officer are over.” It’s not that examiners want to put small credit unions out of business. The reality is that running a financial institution in the 21st century is more complex than in the past and the connectivity of the information age presents greater risks, such as leaked private account information, and that requires more regulatory oversight. Compliance is the cost of doing business and if you can’t bear those costs, you won’t be in business.
Credit union professionals are primarily numbers people so I’ll lay it out for you that way. Your $10 million credit union’s small staff responsible for complying with gazillions of regulations and anticipating a bazillion more while adding copious technological advances. Multiply that by exponentially growing member demands. Extrapolate that out to one very stressed CEO who’s just five years or less from retirement, throw in a harried operations manager and find the cosine of three overworked and underpaid member service reps. I’m reaching for a salty margarita just thinking about it.
Gregg Stockdale, CEO of the $34 million 1st Valley Credit Union, wrote in reply to Meier, “We have seen an exodus of the entitlement crowd from our ranks, but that does not mean the end of small CUs.” He is correct. Size is less important than will and know-how. Large credit unions have failed for lack of these characteristics, but many small credit unions thrive because of them.
Not all examiners are great, no doubt. Bad apples exist at the regulators just like anywhere else, but think for just a minute from a different perspective. Is it really that examiners are too harsh now? Or were they too lax before? The ranting from many credit union executives that came out after WesCorp’s demise centered on the lack of oversight by the NCUA and directors, among others. Now the agency is cracking down as requested and some of the same executives are complaining about that too. Check out Ed Speed’s thoughts on page 12 concerning the regulatory environment. While retaliatory behavior obviously exists in some cases, and many credit unions aren’t going to win exam appeals, that doesn’t mean the regulators are necessarily wrong on the whole.
I’m not a fan of big government in general but enforcing what’s on the books to ensure consistency of application is important. Regulatory bodies, such as the Consumer Financial Protection Bureau, came about specifically because existing regs were not upheld. In 2010, The Safety & Soundness Report uncovered that 75% of credit unions were operating under a document of resolution. Though the NCUA performed a complete 180-degree turn in response to the economic and financial crisis, as many regulators did, I would suggest that most were justified but simply hadn’t been enforced previously. The about-face was enough to give credit unions whiplash, but now that we have landed in the muck, it’s time to slog through it. All interested parties need to come together to understand the whens and wherefores of the examination process and outcomes from here. Credit Union Times would be pleased to facilitate this type of effort and is working in that direction.