Let It All Hang Out

Whenever there is an issue involving a regulated industry, one question that gets repeatedly asked is how much information should be publicly disclosed? While economists would argue that more disclosures and better information allow individuals to make better decisions, public disclosure may not always result in the best public policy.

When it involves the regulator, the regulated and their representatives often insist on full disclosure and complete transparency. I believe this is a legitimate request, especially when it affects how the industry conducts its business and the fees, premiums and assessments they are required to pay the regulator.

When it comes to the regulated, something that deserves consideration is how much disclosure should there be pertaining to any regulatory action that may have been imposed on a credit union. Full transparency would call for NCUA to publish all letters of understanding, documents of resolution and cease-and-desist orders.

Proponents of full disclosure would argue that the members of a cited credit union should be aware of any irregularities at that institution. They should be told what the credit union was required to do to correct the existing problems.

After all, they would argue, these are regulated financial institutions entrusted with the funds of their members and they should be accountable to them. In other words, members have a right to know. Problems should not be swept under the rug, but rather held out in full view to ensure that management promptly fixes them.

Opponents would argue that regulatory actions should be held confidential and the matter resolved between the regulator and the credit union. After all, they would argue, public disclosure of irregularities, regardless how small, could lead to public misunderstandings, a run on the institution, a loss of members and deposits and, in the worst-case scenario, a failure and closing.

The argument is interesting on both sides. Is the regulator protecting the members by not publicly disclosing a regulatory action or are they protecting the management of the credit union? Should the membership be told if the employees of a credit union have, in some way, failed to follow the law and perhaps placed the institution in a precarious position? How much or how little information is considered enough?

As with many credit union issues, we probably will find an equal divide on this issue. But if we are to be fair, if what is good for the goose is good for the gander, if everyone will agree to show their cards, then as the pants said to the shirt, “let it all hang out.”

Michael Fryzel

Michael Fryzel

Michael Fryzel is the former Chairman of the National Credit Union Administration and is now a financial services consultant and government affairs attorney in Chicago. He can be reached at ... Details