I am sure some of you saw the Wall Street Journal article on Friday titled “Credit Union Ramp Up Risk.” The story basically came from the angle that credit unions are loosening their lending standards and taking on too much risk. It’s our understanding that the NCUA was approached, along with other banking regulators, to discuss the current interest rate environment and its effect on risk. It’s clear the NCUA saw this story as an opportunity to once again push the need for a risk-based capital rule to the detriment of the credit unions while also pushing back against the industry and both current and former members of Congress for the concern that has been expressed regarding the proposed rule.
On Friday morning we met internally at the League about writing a letter to the editor, responding to the story’s key points and inaccuracies. However, after talking to CUNA, we decided it was best to let our national trade association take the lead on our response. CUNA communications staff also reached out to the reporters to let them know the story was not a complete picture of credit union risk. Here’s an excerpt of the letter CUNA submitted to the Wall Street Journal:
“….credit unions have been in this situation before and have come out well. Beginning in June of 2004 the Federal Reserve Board began to raise short-term interest rates, and by July 2006 the Federal Funds interest rate had increased by roughly 425 basis points, to a monthly average of 5.24%.
Yet, despite this substantial market interest rate shock, we are unable to identify—either through material loss reports (MLRs) or by other means—any strain on the NCUSIF caused by natural person credit union exposure to interest rate risk. ‘The NCUSIF ratio actually increased over the period from $1.27 per $100 in insured shares at the start of 2004 to $1.31 per $100 at year-end 2006. Similarly, we are unable to identify any natural person credit union with more than $50 million in assets that failed as a result of too-high exposure to interest rate risk.’"
When a story like this comes out in a publication like the Wall Street Journal, it can have ripple effects on Capitol Hill. Lawmakers and staff will read this story, and, if there is no response, may believe it as fact. This certainly undermines the industry and everything we are fighting for. CUNA’s letter-to-the-editor will help set the record straight. Additionally, the League will also reach out to our delegation in Alabama and Florida to alert them to the inaccuracies in the story.
When the proposed RBC rule was released it was obvious that the NCUA wrote the rule without any input from credit unions. This was a key point in my comment letter submitted to the NCUA. The input always comes after the fact and it appears the NCUA is forced to defend its position, no matter how misguided. Contrast this with the CFPB’s approach. While we mostly disagree with its “one-size fits all" approach to financial services consumer regulation, at least it uses a process of input before writing its proposed rules. We’ve seen the CFPB adjust its rules based on this input from folks that actually work in the real world.
Sometimes a story like this can be picked up on a local level. We are monitoring it and we are prepared to respond quickly, especially since one of our credit unions was featured in the Wall Street Journal article. I strongly urge credit unions to consider attending one of the NCUA’s Listening Sessions this July. The League will be represented at the events in Chicago and Alexandria, VA. This story has certainly put those meetings in another light. Friday’s story was unacceptable and unnecessary, and I am confident will backfire on the Agency.
Where’s Patrick: This week I will be in Orlando for the Southeast Credit Union Conference and Expo. Also, this week we will hold the LSCU & Affiliates board meetings. I will also attend the FCUSS board meeting as well. To see my tentative schedule for the next two weeks, click here.