GAO Issues Report on Corporate Credit Union Failures and NCUA Action

The U.S. Government Accountability Office (GAO) has issued a report detailing recent corporate credit union failures and the subsequent action taken by the National Credit Union Administration (NCUA).

The title of the report, “Earlier Actions Are Needed to Better Address Troubled Credit Unions,” really encompasses the force of the report. As a result of the National Credit Union Authority Clarification Act of 2011, GAO was required to examine NCUA’s credit union supervision and use of prompt corrective action (PCA) since 2008. To do this GAO reviewed the failures of credit unions since that date, NCUA’s response to those failures, and use and effectiveness of PCA in those situations.

Ultimately the GAO recommended that the NCUA:

  • Provide its agency’s Inspector General the needed documentation to verify Corporate Stabilization Fund loss estimates;
  • Identify additional triggers for PCA which would require earlier intervention; and
  • Offer proposals to Congress on modifications to PCA.

“For credit unions subject to PCA, GAO found those credit unions that did not fail were more likely subject to earlier PCA action—that is, before their capital levels deteriorated to the significantly or critically undercapitalized levels—than failed credit unions,” the report stated. “GAO also found that for many of the failed credit unions, other enforcement actions were initiated either too late or not at all. GAO has previously noted that the effectiveness of PCA for banks is limited because of its reliance on capital, which can lag behind other indicators of financial health. GAO examined other potential financial indicators for credit unions, including measures of asset quality and liquidity, and found a number of indicators that could provide early warning of credit union distress. Incorporating such indicators into the PCA framework could improve its effectiveness.”

In response to previous critical reports, the NCUA has taken those recommendations or suggestions and, rather than reforming internal operations, has developed new regulations for credit unions—essentially developing a system of shadow regulation.

“One of the greatest concerns of the (Northwest Credit Union) Association when a report such as this comes out is that NCUA will use the report as an impetus for additional regulation,” said NWCUA Director of Regulatory Advocacy Jaycee Winn. “We are pleased that this report offers no specific rulemaking and urges the NCUA to internally address detection and use of PCA. The Association continues to urge NCUA to provide additional detail on the loss estimates. NCUA’s recent launch of websites allowing further insight into the corporate credit union losses and NCUA Guaranteed Notes are steps in the right direction, and we encourage continued dialogue on these areas.”

The entire report is available online.


NCUA Signals it will Rescind Region III Data Collection Request

A Federal Register notice issued by the NCUA on Dec. 27, 2011, has been rescinded. The notice would have extended the current data collection program conducted in Region 3 for credit unions with assets greater than $1 billion. The data collection program, which began in 2009, allowed the NCUA to collect monthly financial data from these institutions, along with executive and board compensation data. To expand this program, the NCUA had filed the notice in the Federal Register seeking comments.

The NCUA has indicated that it will be rescinding the notice in the Federal Register and on the Office of Management and Budget (OMB) website in the next few days, as data-collection programs must be approved by the OMB. The NCUA cited requests from the Obama administration to reduce reporting burdens as the impetus for this reversal. Such data collection is required by Dodd-Frank on an annual basis only.

The program originally began in response to the failure of Eastern Financial Florida Credit Union, which eventually cost the National Credit Union Share Insurance Fund (NCUSIF) $40 million. The NCUA cited this as an increased effort to monitor those institutions that could have the largest impact on the insurance fund.

“It’s always encouraging seeing NCUA listen to credit unions and partnering to reduce regulatory and compliance burden,” Winn said.

 

The NWCUA Regulatory Advocacy team works with state and federal regulators to help reduce the regulatory burden on credit unions and protect the credit union movement. The Association encourages members to participate in the regulatory process. If you have any questions on these or any regulatory issues, please contact Director of Regulatory Advocacy Jaycee Winn at jwinn@nwcua.org, or at 800.995.9064 x209.

Posted in Federal, NCUA.