Legislation (House Bill 2830 and Senate Bill 6369) has been introduced in Washington state to update the the regulation of credit unions in the areas of examination and supervision, penalties, and corporate governance.
The credit union blogosphere has reacted passionately to a provision that would make it "unlawful for any person to knowingly make or disseminate a false report or other misrepresentation about the financial condition of any credit union."
But I believe they are missing an even more important provision. The bill would exempt regulatory enforcement actions by the state credit union regulator from public disclosure.
If this bill becomes law with this provision, history is doomed to repeat itself.
In 2007, state regulators secretly put Norlarco CU into conservatorship. Members of Norlarco CU only found out about the secret conservatorship of their credit union after the Coloradoan broke the story.
As Bert Ely wrote in his January Farm Credit Watch:
"If enforcement orders are not publicized, how can the owners of a mutual institution know that their institution is in trouble? How can these owners know that they need to take action, specifically by replacing directors and managers, if regulators do not tell them there are problems? In stockholder-owned institutions, a declining share price often will signal problems, but owners of cooperatives do not get such a signal."
As the Coloradoan opined in an August 26, 2007 editorial that credit union members should be kept in the loop, otherwise they will become vulnerable to uninformed rumors.
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This proposed bill violates our 1st Amendment rights to free speech.
ReplyDelete"Congress shall make no law... abridging the freedom of speech, or of the press."
re: The credit union blogosphere has reacted passionately to a provision that would make it "unlawful for any person to knowingly make or disseminate a false report or other misrepresentation about the financial condition of any credit union."
ReplyDeleteI will admit I have not read the proposed legislation, however, journalists fact check and would never "knowingly" disseminate a "false report or other misrepresentation." Therefore this doesn't bother me as a freedom of speech issue. Given the vastness of the Internet, any nutjob can cause major problems for anyone else. The point here is to avoid an unfounded run on a financial institution. True journalists are there to educate the public based on the facts of the situation, not scare people with unfounded rumor or speculation.
However, Re: Keith's comment "But I believe they are missing an even more important provision. The bill would exempt regulatory enforcement actions by the state credit union regulator from public disclosure."
Nearly all official government action needs to see the light of day. We pay their salaries, not the other way around. And, credit union members have the right to know the safety and soundness of their financial institution, and that won't necessarily be evident from publicly available financials.
Did you realize that these same provisions are included in the Washington Department of Financial Institution's bank regulatory enforcement bills (HB 2831/SB 6370)?
ReplyDeleteOnly after the post. I believe that you need disclosure/transparency for market discipline to work.
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