Regulators are often the center of attention for the regulated, but lately the NCUA has taken the spotlight. Unfortunately for the agency, it's been low-hanging fruit.
The NCUA recently conserved two credit unions (and possibly more by the date of this publication): Texans Credit Union and Vensure Federal Credit Union. Both under very different circumstances, yet the common mantra from the NCUA was that it did its job to the best of its authority.
True, a few credit unions will fail due to fraud and other circumstances that even acute scrutiny could not detect. But fraud wasn't the situation at these credit unions. (Though it did end up being the scenario at St. Paul's Croatian where the agency failed to notice the credit union hadn't claimed a single default on its loans for all of 2009 and even before. The NCUA IG cited faulty examination at the credit union that is expected to cost the NCUSIF $170 million.)
Other than its members, not many in the industry would give much thought to tiny little $2.7 million Vensure FCU being conserved–just another small credit union giving way to the economic crisis. But this tiny credit union racked up nearly $2 million in fee income last year from business accounts for online gambling firms. And according to Vensure, the agency knew it was going on and had been going on for a couple of years.
Setting aside whether the legal challenge to the online gambling payments, did the agency not learn about concentration risk from the corporate collapse? The issue is a massive safety and soundness concern that neither the board of the credit union nor the NCUA addressed.
When asked about the matter for the story last week, the comment the NCUA spokesman provided was basically that the agency ensures both sides of the ledger add up and call reports aren't necessarily scrutinized. That was jolting news to me.
So I followed up with the agency. A phone interview was declined by a different spokesperson because of scheduling conflicts and 'they' would be more comfortable because of the pending litigation, but could I email questions to them. Not my favorite method, but ok.
Eight hours later I received two answers to the least pointed of my several questions (see sidebar).
In response to a question whether the agency had become complacent in the good years and less prepared for the economic crisis, I was directed to NCUA Chairman Debbie Matz' 'tough-love' GAC speech. In that address she essentially explained how the agency had gotten stricter with credit unions for the good of the industry.
I had also asked whether having an economist on board would help the agency get ahead of economic downturns in the future. The answer from the spokesperson: "It is natural for depositories to incur higher losses and lower demand during economic downturns. The Office of the Chief Economist at NCUA is focused on monitoring macroeconomic and microeconomic risks and leveraging economic tools and analysis to support policy development. NCUA believes enhancing our level of economic analysis and outlook will help us mitigate issues in the future."
Questions for the NCUA
In our recent story about Vensure (and has happened with St. Paul's Croatian and others over the last couple of years) the agency said NCUA examiners only "validate" call reports, and don't necessarily scrutinize them beyond making sure everything adds up. Are examiners encouraged to flag something that doesn't meet the smell test? For example in Vensure's case the $2.7M CU took in nearly $2M in fees and St. Paul's reported 0 delinquencies throughout 2010, which was a particularly rough year.
If examiners make sure the ledgers add up but do not read into the story they could be telling, isn't that a safety and soundness issue? Is NCUA trusting CUs to report everything accurately themselves? Is there double-checking involved?
Has/will anyone at the agency been fired and/or punished in some way as a result of these missteps during the crisis time? If so, how many?
Is examiner training being tweaked in light of these and other instances over the last couple of years?
Editor's note: The NCUA sent responses after we went to press on this issue. Their responses are available in this Credit Union Exchange blog posting.
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