HONG KONG — A leading former U.S. legislator and CUNA chief economist each assured world credit union leaders about the fallout from the current U.S. economic downturn.
Former Democratic senator from Maryland, Paul Sarbanes, declined to call for increased regulation of financial institutions when he spoke before world credit union leaders at WOCCU's 2008 World Credit Union Conference.
Instead he recounted the maze of decisions he and fellow legislators, particularly then-Ohio Rep. Michael Oxley (R), faced as they tried to craft a legislative response to what was seen as widespread failures in corporate governance that led to the Enron and WorldCom corporate failures and scandals.
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Sarbanes said that among the biggest early decisions they faced was whether the problems that led to the scandals were the result of a "few bad apples" or systemic failure requiring systemic solutions. After concluding that the long-standing practice of self-regulation in the accounting industry had been undermined, they decided the problems were systemic and that public equity markets needed more regulation to maintain confidence.
"I mean how many of you would be willing to invest your money in a company which really had no tested system of internal controls," Sarbanes asked. "I don't think very many."
Sarbanes chided reports in the media that blew the costs of the Sarbanes-Oxley Act out of proportion by failing to report that much depended on how the subsequent regulation was implemented. As the implementation became clearer, Sarbanes said, any additional costs were put into the context of the law's benefits.
He said he felt particularly vindicated by reports that regulators in other nations have been racing to the top, modifying their regulations to match those of Sarbanes-Oxley, whereas fears initially existed that regulations overseas would decline in an attempt to attract business with a lighter regulatory load.
Speaking to reporters after his address, Sarbanes stressed that while regulators may need additional authority to further regulate some previously unregulated entities, such as investment banks, he had long urged regulators to use the laws they already have to better effect.
"I have been on record for some time with regulators to deploy tools like the Home Owners Equity Protection Act to rein in some of these practices," he told reporters. During his comments before attendees, Sarbanes asked rhetorically when it had become standard mortgage practice to offer people loans without looking into whether they could pay them back.
CUNA Chief Economist Bill Hampel reassured conference attendees that U.S. credit unions were well-capitalized for this downturn. While the experience they're going through was likely to be "extremely uncomfortable," CUs around the world that remained well-capitalized could find it an opportunity as well.
"One definition of a credit crunch is when borrowers with good credit cannot get the loans they need," Hampel said. "As other lenders leave the market, there is still going to be a good amount of loan demand out there from members with good credit, and they are going to turn to their credit unions for help," he added.
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