NCUA’s Transparency Double Standard

February 21, 2014 at 8:01 am Leave a comment

I am a transparency kind of guy, so it has taken me a while to decide whether or not NCUA did the right thing coupling its Risk Based Net Worth proposal with a calculator with which you can see how a given credit union would fair under the proposal. On the one hand, the calculator has given individual credit unions and Associations a useful and important tool with which to get a handle on a crucially important but complicated proposal. On the other hand, the proposal is just that and to put out for public viewing the consequences of a proposed rule that suggests that many credit unions are less financially secure than they were just a few weeks ago crosses the line between encouraging public debate and peddling inaccurate information in the name of openness. Put a password on the calculator and let credit unions decide for themselves how much of this information they want to make available to the public and when.

It’s strange and more than a little bit curious to see NCUA’s sudden commitment to transparency. It’s as if President Obama decided to pardon Edward Snowden so he could become the head of the National Security Agency. It wasn’t too long ago that NCUA was making all of North Carolina’s state chartered credit unions undergo separate federal examinations because one of the state’s charters had the audacity to make its CAMEL ratings available to the public. It argued than that if one credit union exposed the Holy Grail of CAMEL ratings, pretty soon other credit unions would be pressured into revealing the same information to their members. After that, the industry, followed closely by civilization, would end as we know it. Things would get so bad that the Russians, led by a Kleptocratic thug, would be allowed to hold the Winter Olympics in one of that country’s warmest locations. Okay, that last one actually happened but you get what I mean.

Perhaps NCUA understands it went a little far in its North Carolina inquisition, but I find it a little suspicious, and at the very least inconsistent, for that same regulator to suddenly put such a high premium on transparency. It wants to let any member of the public take a look at a credit unions finances and get a snapshot of how it would fair under a very rough, dangerously simplistic RBNW formula that is years from taking effect if it ever does. Never mind the fact that the information is of very limited value to the general public at this point. It seems to me that Joe Six Pack or a disgruntled member is more likely to understand a risk weighted number than a CAMEL rating. This is a great example of a little knowledge being a dangerous thing.

Ultimately, confidences belong to the party on whose behalf information is provided. That’s why a credit union should be allowed to disclose its CAMEL rating to whomever it wants. Similarly, let’s password protect the NCUA calculator and give each credit union access to its own information. That way, individual institutions could decide how best to handle the RBNW proposal and NCUA can be satisfied that it has provided industry stakeholders with a valuable tool with which to assess one of its most important proposals.
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FED minutes

With the economy still stumbling along, policy officials, including Fed Chairman Janet Yellen, have stressed that the official unemployment rate is not the only gauge to use when assessing how good a job the economy is doing absorbing people into the workforce. This is a vitally important issue because the lower unemployment the more likely the Fed is to start raising short term interest rates. To me, all you have to do is look at the nation’s historically low level of workforce participation and the number of long term unemployed to realize that this is no time to be raising interest rates. So I was surprised when I read the Fed minutes and accompanying articles pointing out that at least some members of the Open Market Committee think it is time to raise rates. What could they be thinking? A possible answer comes from this passage in the Economist:

“recent research suggests the unemployment rate is saying something important. It’s just that the message is a depressing one: America’s laborr supply may be permanently stunted. If so that would mean that the economy is operating closer to potential—using all available capital and labor—than generally thought, and that there is less downward pressure on inflation than the Fed has assumed.”

Under this depressing view, stunted economic growth is the new normal and the Fed has to be quicker to raise interest rates than would have historically been the case. If it doesn’t, then we will have a sluggish economy with high inflation.

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NCUA’s monthly board meeting was yesterday. Unless you’re planning to liquidate sometime soon, there’s not all that much to get excited about. Have a great weekend – remember to break out the sun screen, jump in the pool and have a barbeque, it’s going to be in the 40s.

Entry filed under: Advocacy, Compliance, Economy, General, Regulatory. Tags: , , , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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