Many Put Industry on Path to Mediocrity: Opinion
All of us in the credit union industry–regulators, credit union professionals and directors–have a role to play. Our actions have consequences both short term and long term. I fear that the actions of some of us are leading credit unions on a path to mediocrity.
Let’s start with the NCUA. Ask the NCUA, and they will tell you that its principal function is to protect the share insurance fund. There are two ways of protecting the fund, by surgically cutting out the risks or by full scale amputation of any risk. The NCUA has chosen the latter approach. The strategy is to identify the weakest links to the system (credit unions that have caused losses), determine the cause and implement rules to prevent that cause from occurring in all other credit unions. The strategy serves the purpose of protecting the share insurance fund in the short term but, I would argue, puts the fund and the industry at much greater risk in the long term.
Now, the NCUA has taken the further step of curtailing the discretion of its own regional directors with the recent NCUA supervisory letter 13-01. A personal guarantee waiver cannot be considered unless the borrower and guarantors have been members for at least five years. How do you develop a relationship with the best business borrowers if you cannot provide a competitive loan to them? How serious is the NCUA when it says it wants to expand the MBL cap and help credit unions serve small businesses?
The alternative regulatory approach would be for the NCUA to continue to permit well-capitalized credit unions to decide for themselves when to issue business loans without personal guarantees. The NCUA could further limit this power to only those well-capitalized credit unions that use credit analysts and underwriters with business lending experience of at least 10 years and have a business lending program of at least three years with delinquency levels that do not exceed industry norms. This approach would give well-managed and experienced credit unions the ability to compete in the marketplace while providing protection to the share insurance fund. The current NCUA regulatory approach is so restrictive that it may force credit unions to seriously consider a charter change. Unnecessary restrictions on the ability of credit unions to serve members will move the industry to a place of mediocrity, a place where excellence is not encouraged or rewarded.