For Your Board

The 2010 Financial Reform Bill—Really?

Dr. Wendell V. Fountain, noted credit union author and President of Fountain Associates, offers his take on the recent Financial Reform Bill—for the benefit of credit union boards of directors.

Sometimes I think I’m on the set of the classic film Casablanca—“I’m shocked, I’m shocked that there’s gambling going on in this place!” Whatever happened to the silver bullet which was supposed to cure all governance and financial woes of the past and present, that is, where is Sarbanes-Oxley when you need it? That famous act of 2002 was supposed to put an end to corporate and financial misbehaviors, but it was only 65 pages in length. No wonder it was inadequate. If it had been say…2,300 pages, then we would have had a good comprehensive bill that would have cured Wall Street and all other financial problems in general for all time. Despite the number of pages, unlike the 2,700-page health care bill, some elected officials might even have read this one before voting on it. All I know is that the credit union movement-industry spent millions on compliance to Sarbanes-Oxley. What a waste of the members’ money! Now, credit union managements and boards of directors can spend untold millions in compliance with a bill that totally ignored two of the biggest culprits of the recent financial meltdown—Fannie Mae and Freddie Mac! The bottom line is this bill is inadequate and primarily about little more than political posturing.

Hopefully, members of boards of directors will not let my sarcasm deter them from the seriousness of what’s happening in the economic and financial worlds, because there are specific actions which need to occur.

• Do not wait for NCUA to interpret what’s really in the bill. Members of boards of directors should read the bill themselves and by doing so can be proactive with the provisions therein. Since there will be in excess of 2,000 pages of this bill with which to deal, there is a practical way to approach this process. Equally divide the number of the pages of the bill among the number of directors on your board. Have each board member make notes and highlight areas of concern for which they are responsible, allow about two weeks for directors to digest and comprehend the information, and then convene a special meeting of the board to discuss the findings of each director. As the old saying goes about how to eat an elephant—take a bite at a time. Understandably, many directors will not like this suggestion, but directors have a solemn fiduciary responsibility to fulfill, and this is a pragmatic approach to gaining knowledge and comprehension about legislation which cannot be ignored or avoided.
• Keep in mind that this bill is going to have a significant effect on your credit union, and every director will have to deal with its provisions. One must educate oneself because there is power in knowledge. In fact, sound comprehension of the bill from boards of directors’ points of view can be beneficial to NCUA, state regulators, and other industry professionals. Implementation should go far more smoothly if directors have been proactive regarding the bill. In reality, which is also understandable, NCUA will probably take months to interpret, comprehend, and provide good guidance to the credit union world.
• Credit union investment strategies should be developed judiciously, cautiously, and with a high level of due diligence. Directors should encourage managements to reduce risk, within reason, as much as is possible. Exotic investment opportunities abound, which increases risk and should be avoided by credit unions. If one must err, it should be on the conservative side of the financial equation.
• With the current national level of unemployment at 9.5%, many credit union members have been negatively affected. In fact, in my state of Nevada the unemployment rate is more than 14%! It is advisable for directors to support, encourage and devise financial strategies for unemployed members. Directors need to take note of this, because it is very likely that the national number will remain between 9.5% and 10% for the foreseeable future, and there are certainly no encouraging factors to indicate Nevada’s unemployment rate will decline.
• Don’t expect market conditions to improve in the near or distant future. The market is highly volatile and will remain so for some time to come, which is not all bad, because many large institutional investors rake in millions during a typical quarter. Though it has been said by many economists and pundits that the U.S. economy might experience a double-dip recession, I disagree. I can find little evidence to support that we ever really came out of the first recession. To me, this is an elongated recession, which could even worsen in the near term. So, credit union directors, brace yourself for something worse, do all you can to protect your members’ money, and pray for sunshine to power through the low-hanging economic and financial clouds.

Dr. Wendell V. Fountain is President and Principal Consultant of Fountain Associates, a business and management consulting firm of Laughlin, Nevada, which specializes in credit union strategy. He formerly served on the Board of Directors of VyStar Credit Union (1982-2007) of Florida where he held a variety of board positions, including President of the VyStar Financial Group. He is the author of the highly acclaimed book THE CREDIT UNION WORLD: Theory, Process, Practice—Cases & Application. He may be reached through his website at wendellVfountain.com.

For more information and education for board members, visit For the Board on WesCorp's Member Center.