Preparing For The Next System Failure

April 14, 2015 at 9:18 am Leave a comment

In the movie “The Day After Tomorrow”  the climate gets so severe  that millions of people have  to flee to Mexico in search of warm weather.  I was thinking of this plot line as I drove down to North Carolina for my Niece’s wedding this weekend after spending some time in DC.  You have  to get to Southern Virginia before you see any real signs of Spring.

It felt unnatural to be intentionally heading North on Sunday afternoon.    That being said, my wife was getting tired of my mutterings about insurance funds and megabanks so it is time to get blogging again.

Last Monday I noticed that the retired Captain Ahab to the credit union’s industry’s Moby Dick was  up to his old  tricks.  With some excellent research Keith Leggett  reported that the NCUA sent a Whit Paper to Congress a couple of years ago seeking legislative authority to create a more complicated and ultimately larger share insurance fund for the credit union system.( )  CUNA  has provided a link to the document. Maybe it’s because I was viewing all this from a distance, but a   system that ties insurance fund assessments to both the size and complexity of a credit union’s operations makes sense to me…in theory.

First let’s be honest and admit that the existing share insurance fund didn’t adequately shelter credit unions from the financial Tsunami. If we didn’t get a loan from the treasury Department to payback the debt of the failed corporates the industry would be an empty shell of itself.

Second as the split between larger and smaller credit unions grows larger and larger it make sense that  the  larger more sophisticated credit unions  that pose the greatest risk to the Share Insurance Fund take on  a  greater burden.

Third this should be a long-term plan. The last thing credit unions need right now is another compliance burden.  Let’s establish an RBC framework and then work as an industry and  present Congress with a unified sensible plan for share insurance reform.

Fourth-I love when credit unions complain about NCUA’s compliance burdens and  muse about converting to banks.  There is not a single credit union that would want to be subject to the FDIC’s insurance fund requirements.   Not only are they more complicated, but the FDIC has  the type of discretion that makes credit unions nervous.  Let’s make sure that,  if and when Congress does take up share insurance reform , NCUA isn’t given unfettered discretion to devise what it considers to be a safer system.

Beyond hubris… For those of you who may have missed it Jamie Dimon, who has spent more time negotiating with prosecutors over the last year than a Manhattan public defender, once again  feels secure enough in his banking genius to use a letter to shareholders to explain that most large banks did great  during the Great Recession; that mismanagement of small banks was the real cause of bank failure and that over regulation of banking geniuses like himself is laying the groundwork for the next financial crisis.  This is a lot like an alcoholic blaming Alcoholics Anonymous for his addiction: After all  If  he didn’t have to acknowledge he had a problem he could have kept on drinking.

As Camden  Fine of the Independent Community Bankers wrote in this excellent American Banker piece ( week:

Ridiculing the smaller financial institutions that have to answer to the free market — that do not enjoy an absolute taxpayer backstop against failure — is beyond hubris. It shows a complete unwillingness to accept responsibility. It shows that Wall Street, infantilized by privilege, has learned nothing from what it wrought in those panic-stricken months in 2008 and 2009 and in the years of economic doldrums that have followed.

That is not only infuriating to those of us who have had to survive on our wits instead of billion-dollar backstops — it is fundamentally dangerous…”

Amen Brother! Why aren’t credit unions yelling from the rooftops that more has to be done to hold  large  banks to account for their recklessness? If we have learned anything over the last seven years it is  that our industry will pay a disproportionately heavy price for the mismanagement of the banking system by the megabanks.     This is not about demagoguery it’s about survival.


Entry filed under: Advocacy, General. Tags: , , .

New Credit Scoring Means New challenges For CUS Cutting Off Their Nose to Spite Their Face

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed

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.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 503 other followers