SAFETY AND SOUNDNESS – A UBIQUITOUS PHRASE
BY GIGI HYLAND, NCUA BOARD MEMBER
Have you noticed that there are words in
the English language that become the
“it” words for a time? Example: These
days, when you ask someone how a
meeting went, or how a movie was, more
often than not, the generic reply is, “It was interesting.” The
word “interesting” has become the catch-all for a whole
range of possibilities, from the true meaning (engaging the
attention; capable of arousing interest, curiosity, or emotion,
(Webster’s Third New International Dictionary) to “Yikes!
Have I got a story to tell you!”
In the lexicon of the financial regulator and deposit insurer,
there is no dearer phrase than “safety and soundness.” We
use it incessantly. We issue regulations because of safety and
soundness. We lower a credit union’s CAMEL rating because
of safety and soundness. We conserve a credit union because
of safety and soundness. The phrase appears at least 30 times
in NCUA’s Rules and Regulations but it is not defined there,
nor in the Federal Credit Union Act. So what does this
mysterious, ubiquitous phrase really mean?
I did a little walking around NCUA’s headquarters and asked
some of our senior staff to define it in their own words. The
most eloquent answer, from our Deputy Executive Director
Melinda Love, was:
Safety and soundness is the gestalt of the credit union’s
policies, procedures, internal controls, delivery systems,
people, FOM and governance that keeps the credit union’s risk
CONTINUED ON NEXT PAGE
COMMON SENSE APPROACH IS ALWAYS BEST
BY MICHAEL E. FRYZEL, NCUA BOARD MEMBER
Recently, some parties in the credit union
industry asked NCUA if we have a plan
to assess credit unions leaving the Share
Insurance Fund. There was a concern
that the number of credit unions possibly
converting to other financial institutions could be so large
that the remaining credit unions in the system would be left
holding the bag for the corporate bailout.
Or even better, make them pay before they are allowed to
leave, even though we may not know the full amount due and
legally we cannot do it.
The NCUA General Counsel answered the question in
complete detail pointing out the plan was to continue the
assessments as announced; that there was no major exodus of
credit unions leaving the system; that the number trying to
leave, if successful, would have a minimal impact on the fund;
and that there was no legal authority to bill credit unions
leaving the system for any amount due in the future.
Others say NCUA should be doing a better job in planning
for all scenarios to prevent credit unions from avoiding
assessments. Perhaps the answer to those would be that the
trades should work harder to keep credit unions in the Share
Insurance System. When a credit union wants to convert to
another financial institution, legally the only thing NCUA can
do is ensure that the credit union complies with full
disclosures to its members and that any and all regulatory
requirements for the conversion take place.
Fortunately, the majority of credit union officials understand
and fully accept NCUA’s answer to the question and analysis
of what to do going forward.
Sounds pretty simple and complete right? Well maybe to the
majority. But as we all know, in credit union world, there are
“experts” who not only always believe they have the right
answers, but also believe everyone else is always wrong.
Some have said that NCUA needs to develop a plan that
would require credit unions to pay their full share if they
leave the system regardless of when the assessment occurs.
The plan in place is for the assessments to continue as
announced, not to be concerned about the minimal number
of credit unions who may leave the Share Insurance Fund,
monitor any significant changes, and address any problem
should it even look like one may develop.
Sounds like good common sense to me.
The NCUA Report is published by the
National Credit Union Administration,
the federal agency that supervises
and insures most credit unions.
Debbie Matz, Chairman
Christiane Gigi Hyland, Board Member
Michael E. Fryzel, Board Member
Office of Public & Congressional Affairs
David Small, Editor
National Credit Union Administration
1775 Duke Street, Alexandria, Va. 22314-3428