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The regulatory burden facing credit unions from the NCUA is not near as bad as what banks face from the FDIC. Right now the FDIC regulators take the stance that

The regulatory burden facing credit unions from the NCUA is not near as bad as what banks face from the FDIC. Right now the FDIC regulators take the stance that your bank is "guilty until proven innocent." One bank was getting examined to determine if it was engaging in unfair lending practices. The regulators pulled 6 loans at random from the bank's portfolio. 3 loans were to men, 3 to women. Then they looked at the average interest rate on the loans to the men, the 3 on the loans to women. They found a .5% difference between the male and female averages (the men had the lower rate). The regulators fined the bank several thousand dollars and required it to adopt new processes to ensure that future loans were "fair." Had the regulators looked closer, they would have noticed that the three random loans to men all went to older men with high credit scores...and each male was in a white collar job (doctor, lawyer, etc.). The loans to women, which were pulled at random, were each to younger women, just starting their careers. These were auto loans to a first time car buyer, etc. The regulators didn't care about the details and punished the bank anyway. You are guilty until proven innocent, and they don't expend a lot of effort trying to prove you innocent. In this day and age of big data, a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells.

MrApathy 11y ago
Could you provide a source for your anecdote? I find it hard to believe that the FDIC would look at a mere six loans when their own guidelines [1] call for at least eight, and that's with a population of a mere ten loans. For a higher level of precision on any decent loan portfolio the sample size will be at least 50. Furthermore, having dealt with regulators before, there's always an opportunity to provide written responses with requests for data or an appeal process. Not hard for a bank to argue that a sample size of six isn't representative of their overall lending practices. [1] (Warning: PDF) https://www.fdic.gov/regulations/compliance/manual/11/XI-10.1.pdf https://www.fdic.gov/regulations/compliance/manual/11/XI-10....
- c0achmcguirk 11y ago
  It was an anecdote from Bill Goedken at the 2015 CUNA CFO Conference. It was from the session "Mining Gold – New Trends and Discoveries in ‘Big Data’ That Will Help Your Credit Union Compete". I've linked to the slides ([1]) but there was no mention of the anecdote in them. [1] - http://www.cunacouncils.org/cuna/assets/files/144820_Goedken_cfo2015.pdf http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...
zhte415 11y ago
On why this doesn't make sense: This doesn't make a lot of sense, as sampling post-Enron (not just banks, anyone), should follow a SOX-404 type of methodology (and banks internally, at least in the US, tend to follow this sampling methodology). On why this does make perfect sense: What might have really happened is the bank didn't want to push this, as the regulator were holding something else to their head, or might hold something else to their head (which they may also be unaware of) and [the bank] wants to be seen as a cooperative, not uncooperative, institution. This is extremely likely. It isn't like a regulatory body can instantly understand a bank's business. They can't come in at a micro-level and try to understand the books (at least, for a larger bank). There's not the organisational understanding level there. So, an uncooperative institution gets hit by fines and warnings against directors. Small level non-infraction which may blow-up later (related or unrelated), the bank thinks just take the hit and don't fight it. A smaller organisation may really be worried they're not doing something right (but they don't know what) so this gives some time to get things in order. A larger organisation... similar. This also benefits the regulators (not to push if the bank put up their hands for a minor crime) as it is super easy for a highly complex organisation to obstifucate things later, if they want to, if they see the regulator as somewhat pesky. In this case, the regulator will have to be extremely sure of their case and push things through legal channels often at a country's executive level, and then things also get difficult. For the case of a rural credit cooperative, the regulator may see them as a general social good (as in 'good thing') but needing to be punched on the nose a few times to keep in line. And then there's internal pressure and politics within a regulator of what 'good' actually is. >a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells Completely agree.

MrApathy 11y ago

Could you provide a source for your anecdote? I find it hard to believe that the FDIC would look at a mere six loans when their own guidelines [1] call for at least eight, and that's with a population of a mere ten loans. For a higher level of precision on any decent loan portfolio the sample size will be at least 50. Furthermore, having dealt with regulators before, there's always an opportunity to provide written responses with requests for data or an appeal process. Not hard for a bank to argue that a sample size of six isn't representative of their overall lending practices. [1] (Warning: PDF) https://www.fdic.gov/regulations/compliance/manual/11/XI-10.1.pdf https://www.fdic.gov/regulations/compliance/manual/11/XI-10....

c0achmcguirk 11y ago
It was an anecdote from Bill Goedken at the 2015 CUNA CFO Conference. It was from the session "Mining Gold – New Trends and Discoveries in ‘Big Data’ That Will Help Your Credit Union Compete". I've linked to the slides ([1]) but there was no mention of the anecdote in them. [1] - http://www.cunacouncils.org/cuna/assets/files/144820_Goedken_cfo2015.pdf http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...

zhte415 11y ago

On why this doesn't make sense: This doesn't make a lot of sense, as sampling post-Enron (not just banks, anyone), should follow a SOX-404 type of methodology (and banks internally, at least in the US, tend to follow this sampling methodology). On why this does make perfect sense: What might have really happened is the bank didn't want to push this, as the regulator were holding something else to their head, or might hold something else to their head (which they may also be unaware of) and [the bank] wants to be seen as a cooperative, not uncooperative, institution. This is extremely likely. It isn't like a regulatory body can instantly understand a bank's business. They can't come in at a micro-level and try to understand the books (at least, for a larger bank). There's not the organisational understanding level there. So, an uncooperative institution gets hit by fines and warnings against directors. Small level non-infraction which may blow-up later (related or unrelated), the bank thinks just take the hit and don't fight it. A smaller organisation may really be worried they're not doing something right (but they don't know what) so this gives some time to get things in order. A larger organisation... similar. This also benefits the regulators (not to push if the bank put up their hands for a minor crime) as it is super easy for a highly complex organisation to obstifucate things later, if they want to, if they see the regulator as somewhat pesky. In this case, the regulator will have to be extremely sure of their case and push things through legal channels often at a country's executive level, and then things also get difficult. For the case of a rural credit cooperative, the regulator may see them as a general social good (as in 'good thing') but needing to be punched on the nose a few times to keep in line. And then there's internal pressure and politics within a regulator of what 'good' actually is. >a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells Completely agree.