Are They Nuts?

Six questions board members will ask about NCUA’s final rule on corporate CUs.

October 1, 2010

How will my credit union’s board members react to the National Credit Union Administration's (NCUA) final rule on corporate credit unions? The issues of recapitalization and trust will be a difficult sell in most credit union boardrooms.

Any plan for corporates is a tough read because:

  • It’s written by a group of government policy makers and accountants (and thus is as exciting as an Al Gore motivational seminar), and
  • It contains things that are difficult for credit unions to swallow—like a request for capital.

I present one of my credit union’s directors as an example. To protect his identity, we’ll just call him by the made-up name “Steve” (which is probably his real name because I’m not very good at making up pretend ones).

I vividly remember his reaction when posed with the possibility of us being involved in the recapitalization of our corporate: “You have to be $^%$ nuts!” (OK, in Steve’s defense, he didn’t say “nuts.”)

What Steve (and every other Steve on every board at every credit union) is worried about can be summed up with these six questions:

1. Is there an end in sight? Does the plan have a timeline that’s reasonable, measurable, and, above all, identifiable? Or is it as unending as the 21st time you’ve seen “Titanic” with your spouse.

2. Is the pain shared like peanut butter, or is it lumped on smaller organizations that can ill afford it? Remember, misery loves company. Sweetheart deals won’t play well.

3. Do we at least get the illusion of choice? While I’m not so naïve to think we’ll get to vote yes or no, my current fear is that, somehow (probably through the National Credit Union Share Insurance Fund) the recapitalization plan will be mandatory.

4. Are the benefits to credit unions obvious? Or does the plan to severely gut the industry mean we’d have better luck getting services from the local 7-Eleven?

5. Is the plan both simple and transparent? We currently have about as much faith in the system
as in a Tiger Woods wedding vow. Buy-in will be difficult if it appears much of what happens is behind closed doors.

6. Does the plan show we’ve learned anything? Or is this like Bill Murray in the movie “Groundhog Day,” where we’re beginning just another cycle? Basically, what boards will—and should—demand is some way to ensure that corporates operate within some constraints.

Corporate credit unions are an important part of the industry. They provide key services and, most important, liquidity. But before a CEO will go to the board and commit suicide…I mean, propose recapitalization, the plan must make sense.

JAMES COLLINS is chief financial officer at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740 .