Focus Turns To Regulators’ Role In Financial Crisis

Credit Union Journal Daily Briefing  |  Monday, April 19, 2010
WASHINGTON – The role of the financial regulators’ and their oversight failures is coming under increasing attention by Congress and the public as the debate over financial services reform comes to a head.

During Senate hearings Friday, Carl Levin, chairman of the Senate Subcommittee on Permanent Investigations, called the Office of Thrift Supervision’s oversight of Washington Mutual “feeble” and “pitiful” in monitoring what would become the biggest bank failure ever. The thrift regulator, said the Michigan Democrat, “was more of a spectator on the sidelines, a watchdog with no bite, noting problems and making recommendations, but not trying to correct the flaws and failures it saw.”
NCUA also is undergoing growing criticism by its own Inspector General and from credit union executives and volunteers for its role in the corporate credit union meltdown and in the big credit union failures of the last few years.

Numerous credit union executives have called on NCUA to investigate its own role in the corporate meltdown as part of the reform of the corporate system. And a new report issued Friday by NCUA’s Inspector General found substantial evidence that examiners at NCUA and the California Department of Financial Institutions missed numerous opportunities to mitigate losses at Cal State 9 CU, the biggest California credit union failure ever.

Also on Friday, NCUA’s Inspector General issued a report that found NCUA effectively was asleep at the switch while the manager of a small West Virginia credit union, Center Valley FCU, stole every last dime of deposits, and then some, at a cost of more than $16 million to the NCUSIF.

That followed a recent report on the failure of High Desert FCU, which partially attributed NCUA examiners’ failure to assess the risk of a large concentration of member business loans to the demise of that one-time $190 million California credit union.

In one damning passage in the Cal State 9 report, the state regulator attributed some of its actions in the Cal State 9 case to the fact that the Bush administration was “pushing for less regulation” and “NCUA was pushing for lower net worth requirements, which would encourage credit unions to make more loans”

In recent remarks, NCUA Chairman Debbie Matz, who served on the NCUA Board from 2002 through 2005 before returning last year, deflected criticism for the corporate crisis, even while accepting some of the blame on behalf of the agency.