The article "Blaine Takes on NCUA" [CU Times, Jan. 12, page 1] was a great diversion from the never-ending snowstorms of late. Jim's willingness to challenge regulatory authority concerning the safety and soundness of SECU's capital position and the call for dialogue is the correct thing to do and should be applauded. If more credit union CEOs ran their institutions as SECU, there would be little cause to question capital positions. I do question Jim's sale of a significant part of the investment portfolio just to make a point. Hopefully, there are some other benefits to members.
SECU does nothing fancy or short-term-minded as do many pretender CEOs. This alone should provide the regulator with comfort when it evaluates the capital adequacy of SECU.
Over recent years the examiner force has focused on issues that are not related to safety and soundness, such as consumer matters with questionable connections to that. The NCUA has invoked a shotgun of capital requirements instead of the laser beam of supervisory action to address the problem. The more-capital-is-better mantra is not addressing the problem. More capital is only a temporary fix to stupidity.
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Having more capital than necessary is a disservice to current members. It is a form of theft. Just as mismanagement is a form of abuse of membership. The original Federal Credit Union Act called for an accounting equation that required a credit union to have income sufficient enough to cover its cost and provide a reserve for potential losses. The remainder was to be returned to members. Credit unions were actually admonished for over reserving beyond reasonable reserves for potential losses. Jim is to be commended for returning value to members and letting them decide what to do with the money.
Fred Becker's admonition about not knowing about what will or will not happen in any particular region is absolutely correct. However, there is no stronger protection to the industry than safe and sound business decisions based on fundamental considerations of sound business as it relates to the individual credit union.
What is adequate capital truly depends on the credit union and its operation. The arbitrary standards established by the Credit Union Membership Access Act were wrong. It was a compromise to get banker-thinking Treasury officials to sign off on the act. This has caused the NCUA to force credit unions to act like banks.
It is great that Jim is calling for dialogue and not argument. Blind allegiance to the more-capital-is-better choir is wrongheaded. It would be good if all parties took the time to understand what the true risks are for any particular institution and what the appropriate capital level is. There is little present justification for more capital at SECU, but I also understand the fears of the field examiner. Dialogue is the first step to greater understanding.
Bill Brooks
Principal
CU Prosper
Rehoboth Beach, Del.
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