Backdating Corporate CU Capital Levels

While the OTS backdating scandal has garnered a lot of attention, there has been little, if any, scrutiny of NCUA's retroactive backdating the capital levels for corporate credit unions.

On April 21, 2009, the NCUA Board granted a waiver to corporate credit unions permitting them to use their capital levels as reported on November 30, 2008 for purposes of regulatory compliance and this waiver will remain in effect until modified or rescinded by the NCUA Board.

NCUA justified its regulatory forbearance because many corporate credit unions were likely to experience losses associated with the conservatorship of U.S. Central FCU, which would absorb their capital. Without NCUA's capital waiver, corporate credit unions would be required to curtail or stop offering a number of services.

In justifying this action, NCUA Chairman Fryzel in an April 24 press release stated "many of the functions that corporate credit unions perform are tied to the level of capital, there was a serious concern that they would be unable to provide normal daily operational services to their member credit unions after recording capital losses. To avoid any disruption of critical services, the NCUA Board has issued an order that will permit corporate credit unions to use the capital level as reported on their November 30, 2008, NCUA 5310 Call Report, for purposes of determining regulatory compliance with capital-based requirements and regulations in the corporate rule."
Fryzel concluded "this will allow corporate credit unions to continue to meet members' needs while also ensuring corporates do not take additional undue risk."

So, for example, Southwest Corporate's capital ratio at April 30, 2009 is 4.08 percent – below the minimum capital ratio of 5 percent it is suppose to hold. However, Southwest Corporate's capital ratio was 6.46 percent at November 30, 2008. This backdating allowed them to comply with its minimum capital requirement.

NCUA Chairman Fryzel, in his best Cher impersonation, has effectively turned back time for corporate credit unions and they will love me, love me, like they used to do.

Interestingly, when recounting the litany of efforts to stabilize corporate credit unions in Congressional testimony on May 20, NCUA Charman Fryzel's written statement did not mention the backdating of the capital levels of corporate credit unions to November 2008. To do so, could have brought unwanted scrutiny of the agency's practices from policymakers.