Wendell“Bucky” Sebastian, executive director of the National CreditUnion Foundation, calls current regulators both too expansiveand too inflexible and says they represent the biggest challengefacing CUs overall.

The former credit union CEO and regulator resigns from theNCUFas of the end of June.

“There is always a balance to strike between having a regulatorwhich is a cheerleader for the industry and having a regulatorwhich misplaces its own agenda for that of the industry,” Sebastianexplained, indicating that, in his view, some regulators at thefederal level have done just that.

Sebastian did not name any regulators directly, but said toomany regulators failed to consider what a credit union is seekingto do with or through a given product or service. He cited asexamples some type of short-term, low-dollar loans that criticshave called payday loans but which he said actually help creditunion members avoid third party payday lending firms.

He also cited what he said were excessive provisions for loanlosses that credit unions have been forced to carry, mentioningspecifically the Arrowhead Central Credit Union in California.

Arrowhead Central, a $755 million, 116,000-member credit union,recently emerged from the conservatorship where it had been held since2007.

“I read recently where Arrowhead was returned to its members,”Sebastian said. “But I never thought that the credit union shouldhave been conserved. I think to have to return the credit union toits members is wrong because it never should have been taken fromthem.”

Sebastian argued that time and a recovering economy have donemore to heal credit unions that regulators considered troubled thananything that regulators or additional regulations havedone.

What happened is that time passed, things got better, Sebastiancontended. The credit unions were never as bad off asregulators thought they were. Then the credit unions got better andthen the regulators got to clap themselves on the back for the goodjob they said they did, he added.

Sebastian did not dwell on his experience as CEO of Florida'sGTE Financial FCU (then GTE FCU) but mentioned that a regulatorymove from using a five-year average to calculate provisions fromloan losses to one year was a big part of what led the credit unionto close branches and lay off staff.

“We moved millions of dollars into provisions for loan lossesthat should not have been there and those moves on paper helpeddrive real-world casualties: branch closings and layoffs,” hesaid.

Sebastian argued that credit unions need regulator who are lessfocused on writing new regulations and more centered on lookinginto what credit unions are actually doing with their members.

By way of example, he contended that a “good examiner” should beable to meet with a credit union's senior management team and tellwithin an hour whether or not that credit union is in trouble.

“The very first thing an examination team should do is meet withthe entire senior management team,” said Sebastian, who served asexecutive director and general counsel at the NCUA from 1981 to1985.

“Any good examiner is going to know within an hour talking tothose people if they know what they doing – now they are stillgoing to have to check, but they should have a good idea of theoverall management level,” he said.