Failure Not An Option Is Bad Policy

In a speech before the National Association of Federal Credit Union's Annual Conference on June 30th, NCUA Chairman Debbie Matz stated that creative remedies that prevented the failure of large troubled credit unions staved off significant losses to the National Credit Union Share Insurance Fund (NCUSIF).

She decided that the failure of these large credit unions would not happen on her watch.

Debbie Matz said: "I was adamant. Failure was not an option."

These creative solutions included finding merger partners, replacing CEOs, and prescriptive enforcement actions.

In addition, some of these large troubled credit unions were placed into conservatorship. By conserving these credit unions, NCUA manages these zombies and the NCUSIF does not have to recognize the losses.

To use an overused expression, NCUA kicked the can down the road.

But conservatorship is just another word for forbearance. And let me be clear, I believe forbearance is wrong whether it is practiced by a bank regulator or a credit union regulator.

Through the use of forbearance, this agency is keeping open institutions that should be closed.

For example, why is A.E.A. FCU of Yuma, Arizona still open?

According to A.E.A. FCU's latest call reports, its net worth ratio has been negative for two consecutive quarters. Somehow I don't think control of this credit union will be returned to its members anytime soon, if ever.

This question can be asked about other credit unions that have been conserved.

When failure is not an option for large credit unions, NCUA is admitting that these credit unions are "too big to fail." This is bad public policy and sends the wrong signal to credit unions and the marketplace. Moreover, this policy is contrary to congressional intent that "too big to fail" must end.