The NCUA has expressed support in the past for legislation to expand member business lending. Expanding business lending isn't about Telesis, but the timing could not have been worse. Telesis has been on its very last legs for a couple of years yet the state and federal regulators pulled the plug just a couple weeks before a crucial vote. The legislation isn't about Telesis but the politics are and this was not a great time to make this particular move. I recognize that the regulators should not make decisions to conserve a credit union based on politics, and industry observers can't be privy to all that goes on behind the scenes, but the downward slide of this credit union was apparent for a long time.

Additionally, the NCUA has proposed a regulation to cap participation loans. NAFCU CEO Fred Becker is right on when he points out that the NCUA is hampering opportunities rather than holding examiners responsible for really understanding what is going on at a credit union and how risks are being mitigated. It's the responsibility of the purchasing credit union to perform due diligence on the participations it buys. Likewise, the originator needs to have solid underwriting practices, and each of these pieces is to be reviewed by the boards of the credit unions and their examiners. Each part is crucial to risk mitigation.

Following the problems at the corporates during the economic crisis, the NCUA is understandably gun-shy when it comes to concentration risk. And again, Telesis was made a poster child for what high concentration in participations can do to credit unions. The management and the board are absolutely responsible for the credit union's problems but the examiners were responsible for noticing red flags and ensuring issues were handled.

As a state-chartered credit union, the California DFI was the agency to finally pull the plug on Telesis, but the NCUA as administrator of the insurance fund has some sway. An NCUA statement issued after the participations proposal was issued, stated, “FISCUs have consistently reported higher rates of delinquencies and charge-offs on loan participations–which is one reason why the proposal would extend loan participation protections to federally insured state-chartered credit unions.”

This statement is disturbing. It comes across as the NCUA saying state regulators are not doing their jobs so the NCUA will do it. Following on the heels of North Carolina state CAMEL disclosure and dual exams, I'm detecting a theme.

The NCUA is to be commended for hosting a nationwide listening tour. Chairman Matz rightly explained that it helps to discuss the issues in person. Credit unions need to uphold their end of the bargain and assertively, yet politely, tell the NCUA what they need and don't need. The NCUA board in turn must ensure that what is agreed upon between the regulator and industry trickles down to the staffers writing the regs and examiners in the field.

CUNA and NAFCU have urged Chairman Matz, who's also serving as chairman of the FFIEC, to set up an ombudsman's office in the FFIEC for a regulatory appeals process. Legislation has been introduced in the House to require this, but neither really wants this written in stone. To set it up voluntarily would be in the best interest of both sides. Credit unions are already expending tremendous political capital on business lending and supplemental capital, and establishing law for the FFIEC to over see the process could move credit unions a step closer to losing their independent regulator. Setting it up voluntarily would help the NCUA recoup its reputation for transparency.