Posts tagged ‘NCUA Board’

NCUA’s Shared Service Rule Is a Potential Game Changer

Yesterday the NCUA gave final approval to a regulation that will make it easier for credit unions of all shapes and sizes to provide services to their members. In fact, it could be one of the most important regulations the NCUA has passed in years. Here’s why:

Credit Unions across the country participate in shared branching networks, such as New York’s UsNET, which permits members belonging to a credit union within a network to perform banking services at any of the network’s branches. For example, my sister on Long Island uses the network to deposit her paycheck at an affiliated branch saving her extra drive time. Under existing regulations, multiple common bond credit unions can use these networks to satisfy shared facility requirements provided that they are an owner of the network.

Under the changes approved yesterday, these credit unions will now be able to satisfy branching requirements so long as they participate in the network. This is a potential boom for smaller credit unions which now have a cost-effective means of expanding services to more groups. Joining a shared branching network is as simple as signing a contract. Even if your credit union doesn’t plan on expanding, it’s a great service to offer your membership.

The regulation isn’t a complete slam dunk for the industry.  The board dropped plans to permit credit unions to satisfy branching requirements in underserved areas by allowing members to access an ATM. The final regulations clarify that shared branching facilities in underserved areas must allow members to make deposits and withdraw funds.

Aside from the practical benefits of the new rule, the new framework is one of the best examples I’ve seen of the credit union industry harnessing its combined resources to benefit the industry as a whole. I continue to be befuddled as to why the industry doesn’t do more to pull its resources together. You may say that I’m a dreamer, but like John Lennon, I still hope for a day in which credit unions maximize their bargaining power and back office synergies by adopting a standard core operating system.  (By the way, thinking of John Lennon made me think of that awful Christmas song he sings with Yoko Ono; I’d rather listen to fingernails scratching a chalkboard, but I digress.)

On that note, enjoy your weekend.

November 19, 2021 at 9:28 am Leave a comment

Having “the Talk” … with your IT Team

When Rodney Hood started talking about the importance of cybersecurity for credit unions shortly after becoming Chairman, to me, he sounded like the guy who comes about an hour late to the party. After all, cybersecurity has been a key priority of financial regulators for years now. But the COVID-19 pandemic has proven me wrong. With the number of credit union employees now working remotely, consumers relying more heavily than ever before on electronic transactions, and hackers being so brazen that they now steal from Robinhood (I couldn’t resist), your credit union is dealing with new cyber challenges coming from directions it could never have anticipated. 

This puts the credit union senior management, and ultimately their boards of directors, in the hot seat given they’re the entities ultimately responsible for making sure your IT team is implementing the proper policies and procedures to both protect members and keep the place going. But in order to do this, boards have to know the right questions to ask. At yesterday’s board meeting, Johnny E. Davis, Special Advisor to the Chairman on Cybersecurity, provided an easy-to-understand list of questions in his presentation that a board member could use to zero in on how it’s IT staff has responded to the pandemic. For example, has anyone asked your credit union what policies and procedures it has put in place related to remote access by employees? Another basic but crucial question to consider is how your credit union is preparing in the mid to long-term for the changes that have been accelerated by COVID. For example, in it’s quarterly earnings discussion with financial analysts earlier this week, JP Morgan commented on how it has seen an increased use of online banking resources by consumers, and how it believes that much of the shift is permanent. As a colleague of mine recently said, credit unions better have the technology locked and loaded, because even grandparents are getting used to remote deposit. 

All of this of course introduces a compliance component to consider. Cybersecurity is a point of emphasis for your examiner, and irrespective of your size and sophistication, you should be able to document in your board minutes the steps you are taking with regard to your IT infrastructure. 

NCUA Takes the Wheels Off when it Comes to Derivatives

In yesterday’s board meeting, the NCUA also proposed updates to regulations which would give sophisticated credit unions (with 500 million or more in assets) greater flexibility to use derivatives to hedge against interest rate risk. Under the proposal, these credit unions would no longer require prior approval from NCUA to use derivatives, nor would they be restrained to a specific list of permissible investments. At the same time, board members continue to stress that examiners will evaluate derivative activity to ensure that they are being properly used, and that the credit union and its board have the proper expertise and knowledge required to administer such a program. 

On that note, enjoy your weekend, I’ll be back on Monday.

October 16, 2020 at 9:46 am Leave a comment

NCUA Finalizes Formal Appeals Framework

At Thursday’s Board meeting, the NCUA quickly finalized regulations which will give credit unions a much more structured and formal process for challenging supervisory determinations with which they disagree. The new regulations begin in January 2018.

 Judging by the lack luster response to this proposal—NCUA only received nine comment letters—this new regulation hasn’t sparked all that much interest in credit union land. I don’t know why. For as long as I have worked in the industry, I have heard complaints about how difficult it is to challenge examiner determinations. This new process has the potential of giving credit unions, and examiners for that matter, a fair and dispassionate way of resolving disputes. It also has the potential of providing a body of written decisions that all credit unions could use to help guide their interpretation of regulations.

 The list of material determinations for which appeals can be taken includes: (1) a composite examination rating of 3, 4 or 5; (2) a determination relating to the adequacy of loan loss reserve provisions; (3) the classification of loans and other assets that are significant to an insured credit union; (4) a determination regarding an insured credit union’s compliance with federal consumer financial law; (5) a determination on a waiver request or an application for additional authority where independent appeal procedures have not been specified in other NCUA regulations; and (6) a determination by the relevant reviewing authority that an appeal filed under this subchapter does not raise a material supervisory determination.

 I would have liked the list to be a bit more expansive. For example, I believe there are circumstances under which a credit union, which has its composite CAMEL rating reduced from a 1 to a 2, should have the ability to appeal that determination. Nevertheless, the categories of material determination will cover many situations for which credit unions currently find there is not an appropriate mechanism to question supervisory determinations.

 The new procedure generally works as follows: A federally insured credit union subject to a material determination with which it disagrees will first have to make a written request for reconsideration. Credit unions will now have the opportunity to appeal such determinations to a newly constituted supervisory review committee. The committee will be comprised of at least eight members from among NCUA’s senior staff in all of its regional and central offices. These committees will act very much like intermediate Appellate Courts do. They will have the opportunity to take a fresh look at the material determinations. Finally, your credit union will have the opportunity to bring a further appeal to the NCUA Board.

 On that note, I’ll be seeing some of you later this morning in beautiful Syracuse, New York. Enjoy your day.


October 23, 2017 at 9:26 am Leave a comment

Three Questions For The Newest Member Of The Board

If the CU Times is correct, then my very quiet campaign to be nominated to serve on the NCUA Board has failed.  The Obama Administration is set to nominate Rick Metsger, a former state legislator who the Credit Union Association of Oregon once named its Legislator of the Decade.

The position has two unique roles, as I see it.  One is to be an advocate for the industry as a whole.  This is the fun part of the job where you get to extol the virtues of the cooperative movement, bemoan excessive regulation and pat board members on the back for their thankless service.  A second less exciting but more important part of the job is to establish the framework for the appropriate oversight of the safety and soundness of the industry.  So here are the three questions I would want addressed by the NCUA staff if I ever get my nomination through the vetting process.

1)  What are the systemic risks facing the industry as a whole?  In a recent speech, Federal Reserve Chairman Ben Bernanke talked of a shift in examiner emphasis between monitoring the operational risks of individual banks and recognizing trends that pose a risk to the banking industry as a whole.  For example, the mortgage meltdown triggered the financial crisis but it was the inability of examiners to recognize the interconnectedness of banks to the mortgage industry that turned a cyclical decline in housing prices into a threat to the entire economy.

Does NCUA have an idea of what systemic risks, if any, are unique to the credit union industry?  The NCUA Board throws around the term systemic risk, but it means more than just paying particularly close attention to larger institutions.  It means identifying those vulnerabilities that cause a threat to all credit unions that only regulators are in a position to take action against.  Remember, this is an agency that didn’t have an office of chief economist until 2010, so you to excuse me if I am a little cynical.

2)  Are some credit unions too small to succeed?  Are the days of the small credit union numbered?  Not necessarily, but there are some baseline regulations with which all credit unions and other financial institutions should have to comply and to the extent any institution doesn’t have the resources or expertise to meet these expectations, then how should NCUA respond?  On one track, more mergers seem inevitable.  But NCUA can demonstrate that there is a difference between a credit union that is small for the sake of being small and a small credit union with a well-executed business strategy and growth plan.  What are examiners doing to strike the right balance between the two and is it enough?

3)  How much should NCUA coordinate its activities with state level examiners.  The trend in recent years has been to aggressively obliterate distinctions between state and federal supervision with the result that the utility of the dual chartering system is very much in jeopardy.  This makes absolutely no sense.  It’s a lousy use of resources at a time when every dollar we give to regulators has to be well spent and it makes it more difficult for state chartered credit unions trying to comply with two separate assessments of how best to assure the safety and soundness of their institutions.  I want to know if our newest board member is willing to explain precisely where NCUA feels the line should be drawn when overseeing activities of state chartered institutions.

Americans Continue to Pay Down Debt

The Federal Reserve Bank of New York released its quarterly survey of household debt and Americans continue to pay down their outstanding bills.  Of course, this is a good news, bad news kind of thing.  There can be no robust economic recovery without consumer spending, so the question is at what point do people feel it is time to start getting out the credit card again and going out to dinner?  If this new-found frugality continues, at some point we are going to have to scale down our expectations for long-term economic growth.

See you tomorrow.

May 15, 2013 at 7:57 am Leave a comment

Why I Won’t Be Signing Chip’s Petition

imagesCAI2Z963Chip Filson, the head of Callahan and Associates, is making a lot of noise lately.  Not only is he suggesting that NCUA misused money generated when it wound down U.S. Central last October, he’s heading an internet drive to petition the White House to ensure that the next persons selected to fill the vacancies on the NCUA board are people who have an appreciation of the importance of the cooperative structure to the credit union movement.  It is a nice sentiment, but it’s way down on my list of most important qualifications.

First, get me someone who understands the impact that government regulations have on small businesses.  The single biggest problem that all business lobbyist have, irrespective of whom they represent, is to explain to elected representatives, many of whom have never held a private sector job, that seemingly small mandates have big impacts in the aggregate.  For example, every new disclosure or record keeping requirement not only adds the direct expense of producing new forms and documents, but adds one more layer of complexity to compliance mandates.

Second, I want someone who understands the importance of competition in the financial sector and the role that credit unions can play in fostering it.  Credit unions not only assist individuals of modest means by seeking to lend in underserved areas but they also help all consumers, irrespective of the size of their paycheck, by making sure that there is a cost-effective alternative to that bank down the street.

Third, I want someone who understands federalism.  The NCUA Board has done a great job lately of reducing mandates where it has the power to do so.  But its utter disregard of state level oversight of state chartered credit unions has the potential, left unchecked, of eliminating the dual charter in all but name.  This is in no one’s interest.

Sure, it’s important that credit unions are financial cooperatives and it sure would be nice if whoever goes on the NCUA Board has an appreciation for the cooperative structure.  But as an industry, we spend way too much time extolling our cooperative structure as if it is an end in itself, and way too little time pointing out that we are small businesses that are worth protecting in order to help consumers in the financial free market.

March 8, 2013 at 7:57 am Leave a comment

If at first you don’t succeed. . .

The Wall Street Journal (subscription required) reported this morning that, like the Little Engine that Could, President Obama will unveil changes to the HARP program intended to help underwater borrowers with good payment histories who have been unable to refinance their homes.  Most importantly, the Journal reports that the program will let eligible borrowers refinance regardless of how far their homes have fallen in value.  In addition, the Journal reports that the plan is to “eliminate appraisals and extensive underwriting requirements for most borrowers as long as they are current on their mortgage payments.” 

By just about any measure, the HARP program to date has been an abysmal failure, a fact all but conceded by the Obama Administration.  In addition, it has had the indirect effect of making work-outs even more difficult since many a homeowner (as well as Judges overseeing New York’s mandatory foreclosure settlement conferences) has wrongly assumed that they are entitled to modifications despite the relatively narrow scope of the program.  It is no coincidence that the President will unveil the new  plan in Nevada later today.  Although the housing downturn has been painful in New York, Nevada, Florida and California lead the nation in underwater mortgages.

I guess any attempt to jump-start the housing industry is worth trying, however, I am still not convinced that we are doing anything more than rearranging the deck chairs on the Titanic as long as we don’t address the continued back-log of delinquent mortgages.

Are you kidding me?

Keith Leggett, in his “Credit Union Watch” blog breathlessly reported on Sunday that Carla Leon-Decker, nominated by President Obama to fill the seat of acting Board Member and Former Members United General Counsel Gigi Hyland on the NCUA Board, was the CEO of a credit union that received TARP funds.  While I did not feel the need to respond on Sunday, as the Jets were in the midst of a great comeback against the Chargers, I do want to point out that the D.C. Federal Credit Union was one of 48 credit unions that, as Community Development Financial Institutions, received a portion of a little over $69 million in funds through the Community Development Capital Initiative to provide loans to small businesses at lower interest rates.  D.C. Federal Credit Union received a total of $1.52 million.  In contrast, the Government spent substantially more than $790 billion to bail out the nation’s largest banks.  As a matter of fact, if all bank CEOs who received TARP funding had questionable qualifications for government service, it is possible that only credit union CEOs could serve as Secretary of the Treasury, which may not be a bad idea.  Furthermore, with the benefit of hindsight, it seems to me that the TARP money would have been better spent providing loans to small businesses rather than providing a golden parachute to the financial industry at the taxpayer’s expense.

October 24, 2011 at 6:32 am Leave a comment

Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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