Tell Me Why I'm Wrong

Feat. Randy Karnes

Is the collective IQ of credit unions dropping?

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“The IQ of credit unions now is lower than it was twenty years ago.” That comment made in a room full of credit union CEOs was met as you’d expect; with shocked silence and challenging looks. I heard from them later that they disagreed with the comment, suggesting that the IQ of credit unions is going up, not down. They claimed we’re amid a changing of the guard in the industry, and new leaders are thriving where old ones failed to embrace change.

What wasn’t clear however is that I’m not suggesting the people inside credit unions are of lower IQ—I am sure that the IQ of the individual talent is improving (consistent with their member peers living in today’s retail spaces and expectations). My challenge to my peers was that I fear and feel that the IQ of credit unions is going down.

The plummet is the result of several factors, first of which is the emergence of buyers over builders (NCUA-induced, multi-industry vendor approaches, the weakness of trades and lobbyists, etc.). Second is the unrealistic expectation that all credit unions need the same level of expertise resulting in overpriced expertise with no yield based on situational responses. Lastly is the unfortunate death by 100+ priorities—everything is a priority and a credit union cannot decide when good is good enough, so they buy what their competition buys or CYA coverage instead of building a response that gives them an advantage in the right areas.

Today’s business model operators are playing a game in which they have little control over the key success factors if they stay on this track. Credit unions used to manufacture more of their own solutions, and therefore had more power over price, adaptability, and investment curves than they do today.

Consequently, smarter people are playing a game that is organizationally less intelligently positioned. We’re less about the competitive strengths of a cooperative, more dependent on outside influences other than the member-owner, and far less intuitive about how to gain advantage. We’re much more apt to use crutches elected by insiders than the pioneers that had to craft solutions, not just play with a paint by numbers response.

This is not an indictment of individual operators, just a worry about the decline of credit unions control over their destiny based on the IQ of their organization and the perseverance of spirit displayed.  Before you say, “this doesn’t apply to my credit union,” understand that I’m not painting all credit unions this way, but I do think every CU should gut check themselves against these traps.

Are there enough CU players ready to take big game risks with secondary capital?

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It is clear to most people that in a crisis, surviving as an operator of a financial service firm is not really based on capital, it is based on liquidity.  Check out this article and think about it. Liquidity allows you to survive the marketplace, capital is just something you need to ward off the NCUA and examiner’s community.  Because to most CUs, capital is simply the ante needed to lend other peoples’ money.  What is secondary capital to you?  Is it more money to ante up and grow based on a one-trick pony approach to earnings in a CU, or is it working capital that creates liquidity to survive the marketplace?

Or is it capital to build with and thrive in the marketplace?  Does your organization understand the difference, and is it postured to act on all three fronts: up the ante to stay in the game?  Balance working capital as liquidity to stave off regulators?  Balance working capital to extend investments and thrive with multiple revenue modes and resource extensions?

My question to you is does the industry have enough players that would take the BIG GAME risks with secondary capital to make it worthwhile to take on the attackers that say we are so close to being bankers with a unfair tax status that the whole industry should be washed into a tidal wave of change?  I relish the change, but do you, and how long before you would right the ship and push off to new brighter futures?

As a CEO I have never really had to push hard, I mean very hard, to raise capital… I have had to work very creatively to pay off the expectations of those who push capital into our balance sheet.  And when money comes easily to our balance sheets because the owners of capital to burn send it our way, I wonder what they know about how hard it is to earn on capital these days that I do not.

Worry does not mean I am not in on the game, and would not build businesses to leverage new capital sourced in the CU industry network, but it does mean I worry for those who will not find ways to earn and pay back to capital sources.

Today our members, our owners, suffer in finding ways to believe that credit unions truly pay on the capital our ownership (members) sends to credit unions.  Now of course CUs take little heed of this confusion, they wash it away based on the ideas that members are consumers and have little regard for ownership concepts or the fact that they are the providers of capital and balance sheet health for our cooperatives.  So as an industry we are almost void of examples, tactics, and the overwhelming sense we respect the ownership persona of our members.

What will that mean to a new structure where capital may come from people who do care?  Are we the agents (professional operators and industry designers) that are ready to toe the line for an active, demanding, and constantly auditing audience of a new kind of owner – the investor?  I believe I am, are you?  No matter how the investor wears their sheep’s clothing or hides their fangs – they will be different than a mild mannered consumer put to sleep by rate deals, smiles, and good intentions.

Tell me why I’m wrong!

Is there really reason for fanfare?

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I will look away as the NCUA parades for a victory lap over their TCCUSF actions

Recently I was asked why I refused to accept that the recent actions of the NCUA warranted a nod of approval and a comment recognizing a job well done. How could I argue with the math, with the good fortune to receive monies back, and that they were prudent in holding back a little for our future? How could I not see that the current leaders deserve a victory lap here? Why I joined so many, like my good friend Chip Filson, in feeling weakened by their actions over the last decade instead of empowered by them giving the system back its own money.

We worry for our futures because the NCUA took many of our peers and partner organizations off the map when they OVER compensated and doomed them to poor regulatory calculus and “capitalized” on an opportunity to redefine the system. (A) Reduce the coverage and overlap of the corporate system – less systemic risk (?) and fewer local opportunities (is that a good thing?). (B) Forcing failures on corporates washed through the weakened system and doomed local CUs and led to many professionals being victims of the unintended but purposeful overreach – lost jobs, lost careers, and setting a tone for capitulation and despair amongst many of the customer-owners across the industry. We shifted from self-reliance to compromising with central planners without a clue, and no track record.

Worse the NCUA shifted opportunities and the rights of CU industry players to third parties, monies moved, fees paid to outsiders, and the system no longer felt empowered to live out the scenarios based on its own independence to endure with our members (our status as cooperative entrepreneurs shifted to weakened businesses needing the NCUA mandates over creativity). And in a moment of “we are saving the day” the NCUA made a resource grab to grow its budget, increase its footprint, and cast shadows over the future by now having to justify more expenses on the back of local organizations without tangible returns or the feeling that the system was investing in go forward opportunities. We shifted from self-reliance to compromising with central planners without a clue, and no track record.

And finally, when the misdeeds of the NCUA where so obvious to all (the destruction of member capital through their crisis management), did the NCUA start anew, or start to build faith back with the system? No. It did what all self-serving bureaucratic mobs do – it peeled off a little of the return for their futures. It said, “trust us again, you will need us to hold on to these funds to save you once more.” It proved its budgets were more important than ours. It insulted us all, by once again proving it needed the funds for rainy days yet realized or better forecasted with facts – it just said this cycle would repeat. The NCUA can always bill us in the future for realized events, but no, it takes this opportunity to take it ahead of time. Guaranteeing that we stay compromised and reliant on central planners over local community business structures governed by consumers with the right intentions.

There is no “deregulatory agenda here” – just a bait and switch cycle, where a mob hires good PR managers to feed us their medicine package in pretty bottles and candy-coated stories. McWatters and the board – “Trust us – we could have kept it all, because we are going to need it! Not CUs, us the NCUA.”

Industries do consolidate; the numbers of CUs in this country will continue to decline for the simple fact that centralized planners believe in scale, believe in models easily audited and controlled, and simple because they doom others to fail, not themselves. There is always a victory lap for those who know better from afar declaring “it could have been worse” without real skin in the game. I just know too many people with skin in the game and a sense that the game is rigged for those that do not. Tell me why I’m wrong.

Calling on Better Angels

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Can we look past the perceived failures of the NCUA and work with them?

In a recent email, CUNA announced that it was praising NCUA for the TCCUSF closure and the refunds starting in 2018. A great victory for credit unions… except some in my circle see it as the NCUA bilking the industry and its members by voting to increase the normal operating level to 1.39% and withholding too much.

Some people do see it my colleague’s way, including me most of the time. And even when I give the NCUA the benefit of the doubt (like they need the money), I would rather them give CUs all the money back and then start accessing fees in separate justified transactions.

When I call on my better angels (and that is seldom when I think about the NCUA), I listen to the fact that the best way to change the NCUA is to work with them from the inside out. See that their overreach might be prudent, and sincerely believe that McWatters is a change agent, a balanced committed designer for better things, and that he has the political skills to move the ball. Unfortunately I believe my better angels are optimistic to the point of being naïve.

By now my better angels and I have watched the industry be crushed too many times by the reality that nothing seems to change from the inside out at the NCUA or most government organizations, and now I just wish we would burn it down and start all over. Not deny everything, just look hard at changes the NCUA would never consider until their futures are challenged. Risk moving to a new agency, risk no-insurance backed financial cooperatives, force a split between insurance and regulations, fed insurance and state regulations, etc.

So as to CUNA, the people who take credit for winning horses after the results are in, I doubt they would help any of this from the inside-out or outside-in. CUNA bets on what looks best as a lobbyist, not what might be right as a potential losing principle to stand on that might just one day be a winning long shot.

I hear McWatters simply ignored CU comments on this topic if they were simply expressed opinions and not an argument worthy of his intellectual consideration. And if that is true, he has the intellectual awareness of a pinhead. We do not want to debate design with McWatters alone, we wish to debate results. Not the agency’s, but our members’, our owners’, and the communities’ that count on credit unions.

Pinheads did not start CUs… people did that knew only a few things were needed: that we can help those who join us in hopes of helping others. My better angels want to join McWatters in his efforts, but on other days, I would only do it if he joined us in ours. Too bad I see those things so far apart.

Tell Me Why I’m Wrong.

Look beyond and beneath the “good news” of a TCCUSF refund

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Why increasing the normal operating level from 1.3% to 1.39% is questionable at best

I took statistics a long time ago; slide rules were still the common tool for large number calculations and Texas Instruments was just coming out with its initial hand calculators. My extremely wise professor would allow the use of calculators in an exam, if you could afford one, but he always prefaced the test with the admonishment, “Remember, if you press wrong number, you get wrong answer.” The current plan to close the TCCUSF is long overdue and a bold move by the board, but I think the action steps are based on an overreliance on “sophisticated models” which have been shown over the last 6 years to consistently and considerably underestimate the value of the assets taken and overestimate the losses. Obviously, more than a few wrong numbers have been pressed, to get these kinds of modeling errors.

The great news is that NCUA has told us that closing the Stabilization Fund this year could result in a distribution of between $600 and $800 million of credit union capital in 2018. The bad news is that the distribution is keyed to a questionable increase of the normal operating level (NOL) from 1.30 to 1.39. By closing the TCCUSF and transferring those funds to NCUSIF the equity ratio of the NCUSIF would be between 1.45% and 1.47%. That’s an additional $1B to protect us from ourselves! Based on what horrible example from our past or unforeseen attack in the future?

Obviously, by maintaining the normal operating level at 1.30% the agency would be required by statute to make a distribution of 15bps to 17bps, right? Not so fast there buddy! What about all of that extra risk from the legacy assets of TCCUSF that now rest within the NCUSIF? According to the agency, they need to elevate the NOL and retain 9 basis points of the distribution to fulfill the economic projections based on the FRB scenarios and Black Rock modeling. That’s why if the closing transfer to the NCUSIF is $1.9B (as projected by NCUA) the agency keeps over half of it to cover the risk that their Black Rock Model projects in a recessionary economy.

They sure lean on their high tech and expensive modeling consultants. Is that the same kind of modeling that back in 2011 projected Legacy Asset defaults to be between $13.2 and $16.4 billion and which today are projected to be between $10 and $10.4 billion, or between 30% to 60% overstated? Is that the kind of statistical accuracy one can expect from a world-wide firm like PWC, who incidentally was paid over $9M between 2010 and 2014 by the NCUA? Can we expect that the current projections by Black Rock, which was paid $5.5M between 2013 and this year, to be any more accurate? After all, we’re talking about over an additional $1 billion dollars being placed under the control of the NCUSIF as long as the board accepts the staff recommendation to increase the NOL. That means the agency would now have the earning power of over the $15B in the NCUSIF to hit up for an OTR that, even if reduced to 50%, supports an NCUA operating budget which continues to be projected to grow at 4.5% per year and which continues to look to the NCUSIF as the cash cow that means as much to the sustainability of an overweight and wasteful budget at NCUA as it means to the credit unions who have funded their own insurance fund with their members capital.

So, what we have is the typical quid pro quo that the agency so often foists on us, on one hand giving us some of our money back while on the other placing an additional burden on us by increasing the normal operating level to 1.39%. Gee guys, if the NOL was last increased to 1.3% in 2007, before the great recession, and we seemed to survive that okay, why do you need 1.39% today? Even if we agree that 1.39% is a good number today why don’t you at least guarantee us that the NOL will sunset after one year, so you can transparently prove to us to remain at that level, increase it, or heaven forbid, actually decrease it.

Good intentions indeed, but forgive me if I also want to look beyond and beneath the “good news.” Remember, you only have two weeks to get your comments into NCUA. Tell me why I’m wrong!

Picking out the diamonds in a tidal wave of gems

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Time management is about figuring out what not to pay attention to

If you’re on my email lists, you’ve probably seen the onslaught of communications I’m capable of sending out and wondered “how am I going to find the time to read all of this?” So when I was asked the question “how do you manage the volumes of important and less important emails to and from the network?” I decided to get philosophical on the topic of time management.

This topic is the most common worry of teammates on the way to the next step in their careers. “How do I keep up with my mounting responsibilities while also being even more informed?” It might be the number one challenge we face daily in the business world today: sensory overload and the constant conflicts in priorities fighting for our attention.

Time management isn’t just a business problem

We see it as a business problem because it is, but in reality it is there constantly throughout our everyday lives as we balance our work, home, family, etc. The amount of noise we face while managing our daily lives can be both a blessing and a curse. A blessing because we are more aware of everything today, or at least we know we have the option to be aware. The intensity of so many wonders and horrors for the active person today is inspiring (the grand designs of nature, people, science, etc.), but it has the potential to create devastating stress (the pain from connecting with negative events everywhere and all the time) as negative awareness can warp the senses. Our business lives are no different.

As business leaders, we can be impacted in two ways. Inspired for the potential of designs, hopes, remarkable efforts, and sincere valuable goals that can make us want to do everything at once with a euphoric endless energy. Or devastated by the sense that all great efforts might not be rewarded, are challenged by things off the path, can’t be done in the time available, in addition to all the down sides of human nature that distract us.

How do you react when you’re being bombarded with over-hyped inspiration and over-hyped devastating challenges? The first thing for every business leader to find is a sense of calm, and joy in the fact that life is a long journey; challenges actually create the work and sense of winning for the reward in effort, not just success. Being in the game is the goal more than anything else. In essence, when we have purpose, life is good. Filter out everything that is not in line with that sense of purpose.

More practically: time management is more about what you don’t pay attention to than what you do.

Effectiveness vs. efficiency

Recently I started reading a book that caught my eye: “The Subtle Art of Not Giving a F*ck” by Mark Manson. One review in particular gave me hope for the book: “Resilience, happiness and freedom come from knowing what to care about—and most importantly, what not to care about. This is a masterful, philosophical and practical book that will give readers the wisdom to be able to do just that,” Ryan Holiday. (Full disclosure: most of the books I buy have cool titles, but little in the way of content. Buyer beware!)

This is why I stress the concept of being effective over being efficient. Only effective people or organizations stay in the game and have the chance at dealing with their demons in search of maximized efficiencies. Maximized efficiencies look for marginal improvements once you reach effectiveness, and over paying for marginal, “in the eye-of-beholder” improvements not on your path will encourage you to leave an effective path. Once off the path you are no longer in the game enjoying the journey and calm.

The only thing worse for small firms than the ludicrous efforts made for maximizing efficiencies beyond effectiveness is the sense that they must overpay for disasters avoided. And today everywhere around us are people earning and controlling us by the sense of their value to disasters yet realized. If you eliminated this noise you would find calm much more available to us all, fearing the journey a little less, and find it far more believable that the game is winnable. Scale goes both ways, and if you balance the effective approach to your priorities you can scale down the noise.

Or at least be blissfully unaware as you don’t always have to give a…

Can Fintech save the day?

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New tech and toys are only useful if you change your culture and processes to drive your revenue models

Last week Greg Smith sent me an article written by Shana Richardson about how Fintech is eating credit unions’ collective lunch. In it she suggests that Fintechs have been successful because they approach consumer lending (among other services) through the lens of consumer needs and expectations, while credit unions “are too focused on the tactical aspects of their business model.”

No doubt the fascination with Fintech firms instead of ideas is a bit disingenuous and frustrating. If CUs wanted to work at the ideas for financial services first, and then build something based on the viable and actionable service models that CUs would really pick up and run with, then I would be much more excited about many of these.

But if they are just “causes for the sake of causes” toys to engage your marketing image, then they really give no hope to solving CU consolidations or renewing income foundations. I will read the blog over a few times to make sure I can speak to this more effectively in the future.

Like most cores we are putting in place API platform solutions (DHD/DIY) so CUs can extend to these solutions more readily, but extensions most often cost, not enhance, credit unions, especially in the cases where CU culture does not bend to the tactic. CUs often suffer from these pitfalls:

  1. Too wary to say yes….underwriting based on a lack of trust, not speed to trust.
  2. Poor affirmation of bad or good actors post the transaction or relationship opening….too slow to verify and act.
  3. Automated underwriting is still not a core culture trusted solution….no momentum from building success.
  4. Too little data content to exchange value through automation and third party front ends.
  5. Too few small wins to create repeatable muscle memory and take tangent ideas mainstream…..

Shana is a thinker, a leader, and has the energy to move things. I like the push. Tell me why I’m wrong!

Is anybody watching?

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Lessons we can learn from an old song

Remember the old spiritual song “Dem Bones”? The first verse went like this:

Toe bone connected to the foot bone
Foot bone connected to the heel bone
Heel bone connected to the ankle bone
Ankle bone connected to the shin bone

Etc. etc. etc………… until

Neck bone connected to the head bone
Now hear the word of the Lord!

During the last NCUA board meeting on Friday, June 23, I couldn’t get that song out of my mind. In what looked like a rather thinly attended meeting (no telling how many tuned in via the web with me), the board entertained a report from staff on their response to the 2016 request for comment on the Overhead Transfer Rate, which has resulted in an underwhelming proposed rate methodology for board approval after a 60-day comment period.

This is what happens when an organization has a poorly constructed strategic plan; the staff thinks too small. (See my 2014 and 2016 comments on the NCUA’s strategic plan.) They think that they were charged with finding a solution to a single limited problem. To design a more easily understood and transparent formula for the OTR and that’s exactly what we got. But the comment letters didn’t just address the OTR formula, they also addressed the unrestrained growth and burden of NCUA operating expenses, and that, my friends, is what made me think of “Dem Bones”!

My version……..

The NCUA operating budget is connected to the OTR,
The OTR is connected to a lower NCUSIF equity ratio,
The lower equity ratio is connected to another premium hit for all insured CUs,
The premium hit is connected to the ever growing earning capacity of the fund,
The significant earning capacity of the fund leads us back to the black hole of NCUA operating budgets.

Any exercise in problem solving starts with an analysis of the root cause.  The problem that faces us collectively is not the OTR formula, it’s the extraordinary operating costs of an agency that has grown to see the fund and its role as insurer as the credit union funded El Dorado. Regardless of Board Member Metsgers’ comments, this isn’t a problem that pits federal-chartered against state-chartered, it’s a problem we must all face together, both regulator and regulated.

I belong to two state-chartered credit unions, and while a reduction of the OTR to 60% is better than a stick in the eye, I have a much bigger problem with the $300 million operating budget. Sure, I understand the impact of lower rates in the bond market and how CU losses contribute to pressure on the equity ratio, but when was the last time anyone at the agency said they should reduce expenses as part of a plan to manage the equity ratio? I’m talking about a real world reduction not just a D.C. Beltway reduction of the rate of growth. How can we significantly (10%, 15% or 20%) reduce the costs of oversight while simultaneously increasing the quality of that same oversight? That should drive every thought and every action at an agency responsible to the nation and the owners of this country’s credit unions.

I’ll be addressing the details, good and bad, of the new OTR methodology in at least a couple of new blog entries in the next few weeks. While the official 60-day comment countdown has not yet started please take the time to look at the staff presentation slides found in the Board Action Bulletin at this location: www.ncua.gov/newsroom/Pages/news-2017-june-board-seeks-comments-proposed-changes-otr-methodology.aspx

If you get the chance, watch the video of the meeting on the NCUA web site. It should be available in the next few days. Let’s make a real effort to get as many comment letters as possible sent to the board. The last comment period produced 40 letters… It’s imperative that we at least make a case for being interested in the most important issues of our collaborative network.

Tell me why I’m wrong!

Are you following along with the OTR?

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Follow up comments from Randy Karnes, Chip Filson, and Vic Pantea on the OTR dilemma

Last week, Vic Pantea wrote a great piece on the OTR calculation methodology and the anticipated response from the NCUA to the Request for Comment.

I love when we have guest writers and Vic nails it here. What do you think? My biggest worry is that CUs are not serious about this. Heck I am not sure they are even mildly interested in it.

Years ago I sat in a CUFSLP meeting with 30+ leaders of the largest CUs in the business and the response to the call to comment and influence the OTR was muted, and best represented by a casual comment that “they will get their monies either way…let’s pick bigger battles.” Sooner or later the NCUA budget gone awry will get CU leaders’ attentions and maybe someone will agree with Vic.

Chip Filson

I agree. The issue is even more critical as NCUA plans to merge TCCUSF into NCUSIF. This will give NCUA first dibs on the $2-4 billion excess funds expected to be available after the shareholders of AMEs receive their $2 billion or so in recoveries.

Vic Pantea

Randy’s comments about the meeting at CUFSLIP isn’t surprising when we look at the weak response to the Request for Comment last year. As a credit union owner I’m just disappointed that the credit union professionals and volunteers who have a responsibility to wisely manage our shared capital don’t seem to care about how the NCUA is being managed, to the extent that even when they’re asked to comment about the most significant agency funding mechanism, all you hear are crickets.

This problem starts with the nature of any governmental agency but is inflamed by our own abdication of our individual responsibility to participate in the process. It’s obvious that to just say “CUNA will take care of this” or “NAFCU will deal with this” is a cop out.

Yes, Chip is correct that this problem will be magnified by the pending decisions about TCCUSF and yet more time, effort and column inches are wasted on worrying and writing about something minor like CECL. Ridiculous!

Tell us why we’re wrong!

Blow up the OTR calculation methodology

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Pay attention to the FCU Act; today’s Board could make bold choices

We should soon be seeing the response from the NCUA to the Request for Comment on the Overhead Transfer Rate calculation methodology posted over one year ago, January 26, 2016. The comment period for that request ended on April 26, 2016, and even though the NCUA has apparently slow walked their response, it was a significant event on which credit unions, their associations, and state regulatory agencies were asked to comment and make recommendations.

As we know, the OTR is the methodology that supports the agency’s reimbursement for expenses directly related to its management responsibilities of the NCUSIF. This authority to transfer funds from the NCUSIF to the operational budget of the NCUA is found in Title II of the FCU Act.

Let’s take a look at the pertinent section of Title II if the FCU Act. Sec 1781, b(1)

  • The act allows for the payment to the NCUA any reasonable costs is incurred to determine eligibility for insurance coverage. The legislation states that such payment shall be based upon “reasonable costs”.
  • The act states that information gathered in a regulatory examination process shall be derived so that it may be utilized for purposes of the insurance review. This is obviously intended to streamline the examination process in federally chartered CUs, all of whom are also federally insured. This also explains why you can’t find any instruction in NCUA Examiner Guidelines that differentiates the process, protocol or evaluation of data between a “regulatory exam” and an “insurance exam.” For federally chartered CUs the clear legislative intent is that the NCUA examination be one in the same, covering both the requirements of Title I and Title II.
  • The act clearly recognizes the existence of a dual chartering model that permits SCCU participation in a Federal Share Insurance Program. It recognizes the regulatory authority of the states and requires that NCUA, in its role as insurer, use state regulatory exams, “to the maximum extent feasible;” to carry out its responsibilities as insurer.

How do we create a new insurance business model and examination process that reinforces the principles of the Act? What will be the benefits of scrapping the current OTR calculation and the measured activities of the agency that have driven it to its current unacceptable state? How will it impact the security and stability of the Share Insurance Fund?

A bold opportunity for a regulatory renaissance

The months since the departure of Chairman Matz have shown evidence of board leadership which is willing and capable of driving the kind of innovative change that our co-operative model needs and the changing times demands. The agency has promised that we will see a new and more transparent OTR protocol. Unfortunately, I will be very surprised if the changes amount to much more than a few tweaks. There are way too many oxen that need to be gored to expect revolutionary and evolutionary change to a process currently being leveraged to the disadvantage of the credit unions who foot the NCUA bill. We can only hope that this new board grabs the opportunity to be bold, to re-engineer a process that currently ignores history and the clear written intent of the Federal Credit Union Act.

The usual MO of a government agency, seldom or never evaluates the opportunity to go back to the basics of the legislative intent, burn down and gut the current process and start over. Instead the usual, less painful, process is to make less drastic modifications that pacifies the internal pressure to fight change, protects jobs and adds costs to a process that does nothing to realign a regulatory environment that produces improved oversight at lower costs.

Can we change that mindset? Can we muscle up the courage and effort to support such an effort? How do we get from here to there?

Get serious about taking a meat cleaver to the NCUA budget

Like most organizations, the greatest expense of the NCUA budget is personnel and associated expenses. The majority of personnel costs are related to the regulatory and insurance related examination process. In 2016 the budgeted workhours (Request for Comment regarding OTR, January, 26, 2016, Table 5) related to these core programs (Federal Examination, Federal Supervision, State Exam & Supervision, State Exam Review, Federal 5300 Program and State 5300 Program) was 728,556 or 350 FTEs. The portion of that 2016 budget allocated to FISCU related activities was 190,251 workhours or 91 FTEs.

The agency does deserve credit for making a reduction in the allocated workhours related to these core programs in 2017 (2017 Overhead Transfer Rate Summary, Fazio, November 17, 2016). Total core programs workhours in 2017 are 655,641 or 320 FTEs. This represents a 10% decrease from 2016. The FISCU related activities have been reduced by 12%, to 167,414 work hours or 80 FTEs.

Good start, but hardly bold. Why isn’t there a small team of maybe 20 FTEs responsible for the insurance oversight of FISCUs? Why isn’t there a strategic objective to drive this kind of reduction? Why isn’t the clear intent of Title II being faithfully exercised by using the examination work product of state regulators to the maximum extent possible? Why isn’t the agency using modern technology strategies to remotely receive and review state regulator work product? Why isn’t the agency receiving real-time alerts from Camel 3, 4 and 5 CUs (most likely CUs to impact NCUSIF) when performance standards exceed acceptable ranges? Why are there reports that Camel 1 and 2 rated small state-chartered CUs are being visited by small teams of federal examiners for the first time in years? Are they suddenly a threat to the NCUSIF? What are the characteristics or criteria of an “insurance examination” that make it any different from the “regulatory exams” being performed by state examiners? Where is the legislative direction that authorizes a duplication of effort at SCCUs?

Agency realignment overdue

I know credit unions are not happy about the increasing regulatory financial burdens imposed on them, their self-funded share insurance fund and their member/owners. The current NCUA board has an opportunity to be strategic, bold and innovative by addressing these concerns of their constituents. They alone can impose an institutional objective that reduces oversight costs while simultaneously increasing the quality of that same oversight. As member owned co-operatives we are live daily with this same expectation and we should demand the same from NCUA as the benefactors of their activities

I hope they start this renaissance immediately. I hope they use a new OTR strategy as their example of their effort to be the best stewards possible of credit union capital and credit union principles.

Tell me why I’m wrong!