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ALEXANDRIA, Va. — NCUA Board Member Gigi Hyland echoes the agency’s recent guidance on ROA. In fact in today’s economic climate, a lower ROA may reflect the credit union is doing all it can to offer members more. Hyland also hopes credit unions continue to reach out to the small business market. Credit unions have been serving businesses for years and need to partner with the SBA and others to continue to do so. Hyland, who has been out and about a lot in the industry, recently hosted an SBA Webinar. The Webinar covered the basics of SBA lending and NCUA’s approach to examining credit unions doing SBA lending. Credit Union Times offers the following Q&A with Hyland to see what’s on her agenda going forward: CU Times: What is the importance of the ROA guidance that NCUA sent out? Are there concerns there, either with the NCUA examiners or with credit unions? Hyland: I wouldn’t express it as a concern…I think credit unions really needed some guidance from NCUA and look into NCUA’s head, if you will, on examiners and the guidance we’re giving examiners to evaluate credit unions’ earnings…In the current environment that we’re in, a 1% ROA is very difficult to achieve. From a safety and soundness perspective, it really doesn’t necessarily rise to the level of safety and soundness, but you have to ask, “in looking at the current environment, is that board able to strategically position itself to leverage the capital that the credit union may have built to again provide the services that the members really need and want.”…In fact, 50 basis points earnings, using capital and a CAMEL 2 is not a bad place to be. Matter of fact that might actually be a better scorecard and evidence that the credit union is really doing all it can to provide products and services to its members. CU Times: I would assume the agency has to draw a line where this is proper management and this credit union’s earnings are just dropping and they can’t fix it. Hyland: The NCUA has a risk-focused exam and we leave it to each individual examiner to create an exam for a particular credit union that’s appropriate for the risk that that particular credit union has undertaken. So the examiner has a great deal of flexibility–rightly so–to evaluate the credit union’s ability to navigate these very difficult waters that we’re in as a financial services industry. CU Times: You’ve mentioned you wanted to discuss strategic planning. What angle are you coming from there? Hyland: Strategic planning really from the perspective of [credit union boards] looking into the future and looking at what they want their credit union to be not just a year from now, but three, five, ten years from now? And are they positioning the credit union appropriately to achieve those goals? It’s as simple as that. CU Times: Also tying into that is staffing and the boards. There’s been talk among credit unions as well as the agency that the executives are “graying” and the boards are “graying.” How does that all tie in? Hyland: I think it all ties in together…I think credit unions really need to step back and look long and hard at the existing fields of membership that they have and really explore whether they’ve done all that they can to reach out to those different segments. The value proposition for one member may be very different from the value proposition for another member whether you divide that by age, whether you divide that by ethnicity, whether even by geography potential. Credit unions need to be aware of that and find a way to be responsive to all of those members needs and meet the members where they are in their particular segment of their life…Credit unions I think are uniquely positioned to be able to do that, but it takes work. It takes strategic planning. It takes stepping back and looking at your membership to figure out what those needs are and meeting those needs. CU Times: You’ve also been interested in data security. Are there any new NCUA regs on the horizon or any help the agency might be offering? Hyland: There’s a requirement that’s going to go into effect at the end of this year that’s going to require multi-factor authentication. There are a couple different letters to credit unions that have been issued…which really provide guidance to credit unions on how they need to complete a risk assessment for Internet-based products and services to figure out whether those particular products and services really are high-risk transactions and if they are how the credit union should figure out adding additional control mechanisms to what they already may have, like a single factor authentication. CU Times: In that most recent letter you mentioned, the agencies said they’re not going to back down as far as the compliance date. I’m also hearing from a lot of credit unions that they are having difficulty possibly meeting that deadline, partially because some vendors may not be ready for it. Are there going to be any kind of considerations given? Hyland: As the date comes and as examiners start going into the field, again, examiners will have the discretion to really look to see how a credit union is doing. The best defense is a good offense for credit unions to the extent that credit unions have done a good job of documenting their efforts to date. I think that’s critical and crucial in really showing examiners the progress that has been made to comply with this new requirement. I think that credit unions have to do the best that they can. Obviously, there’s a compliance date that’s looming and credit unions need to be good at documenting their efforts and should really strive to do that. CU Times: How do you view data security from the safety and soundness point of view as well? Hyland: As you can see from those letters, a lot of times the NCUA shares the opinion of the other FFIEC agencies which for transactions that are high-risk transactions on the Internet, a single factor authentication is really not a sufficient control mechanism to authenticate members because of the continuing evolution of fraud, of different types of viruses, of different types of ways for fraudsters to mimic financial institutions’ Web sites. CU Times: What is the importance of credit unions’ authority to be able to make business loans? Hyland: Member business lending, if you look traditionally at credit unions, has really been a significant part of credit unions, certainly back in the 1800s in England and Germany. That really was the basis of credit cooperatives that folks lent to each other to establish and maintain their small businesses and that, I think, has to be a continuing part of the products and services mix that credit unions have in today’s financial marketplace. A lot of other financial institution lenders have a limit to the commercial lending which is fairly high, which is a million dollars, sometimes $2 million, and, for a small business owner who may not need that much money in a line of credit, they need a place to go to get the necessary financing for their business operations. I think credit unions can really provide those products and services to their members. –[email protected]

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