The Good, the Bad and the Ugly

by Michael Fryzel, Attorney and Financial Services Consultant

By. Michael Fryzel, NCUA

When I began my position as Chairman of the NCUA Board more than four-and-a-half years ago, I was confronted with a dire situation involving corporate credit unions that threatened the continued existence of thousands of natural person credit unions. Namely, investments that corporates had made in mortgage-backed securities were no longer sound and the anticipated losses were much greater than earlier projected.

In addition, the credit union system faced a major liquidity problem as our country’s economy took a serious downward slide, the most serious since the Great Depression, that would require years to reverse.

To address this massive problem, we made hard decisions and initiated actions that we believed would best correct the problems and avert a catastrophe. Not everyone agreed with the actions we took; some were taken aback by the projected cost to save the system. Looking back, I am confident that what we accomplished has worked and the system, as a whole, is now strong again.

There is, however, one aspect of the problem we faced that still troubles me as we continue with lawsuits against the underwriters that sold the corporates the faulty mortgage-backed securities, as well as the individuals who had a direct responsibility for what occurred.

It is disappointing to see the lack of leadership, decision making and accepting of responsibility. Highly compensated executives at the corporates and their boards of directors failed to properly monitor their investments, and to make the hard decisions to correct what seemed to be going wrong.

As the degree of the problem became known, I made it clear that there was more than enough blame to go around. Everyone from the regulator to the regulated, we all could have done a better job. If anyone wanted to point fingers at someone all they had to do was look in the mirror.

At the time, I said that those individuals who caused the problem must be held responsible for what I saw as a breach of their fiduciary duties and responsibilities. I personally believed financial remuneration was mandated along with a bar of further involvement in the credit union industry at every level.

NCUA had numerous attorneys review each individual case and make recommendations as to which should be pursued. Unfortunately, in my opinion, their recommendations fell short and were nowhere near as aggressive as they could have been.

As the industry is well aware, most of those who were responsible for the mismanagement of the corporates have settled rather than go to court. In my opinion, as a result they got off easy for their actions.

All of the settlements, except one, have had confidentiality clauses which means the terms of the settlements cannot be made public. That is unfortunate, as everyone should know what they paid and what they agreed to.

And for those who agreed that they would never work again at a corporate credit union, that was not enough for what was done, or should I say not done. With all of the information I have at my disposal, I have strived to do the right things for the right reasons in my NCUA Board duties and responsibilities.

Those who have criticized NCUA for our pre-crisis corporate oversight have raised legitimate questions. I can only respond that we changed what we could, put in place the people we felt would right the wrongs and reassigned those that previously were in charge. Remember, this is the Federal Government it moves at a snail’s pace and often limits what you may like to do to resolve a problem quickly.

While some things that were pursued and achieved were for the good of the credit union system, other matters that were not pursued as aggressively as they should have been were for the bad.

And the corporate meltdown is an example of the ugly that happened within the credit union industry. The remedy needed to fix this problem and provide deterrence in the future is greater transparency and personal accountability.

Michael Fryzel

Michael Fryzel

Michael E. Fryzel is an Attorney and Financial Services Consultant with offices in Chicago, Illinois. He can be reached at Utilizing his extensive experience as a proven ... Details

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