Her testimony noted that since the end of 2006, the delinquent loan ratio and net charge-off ratio have more than doubled. She also noted that 270 of the 633 credit unions, which have a 3, 4, or 5 CAMEL rating and make member business loans (MBLs), business lending is the primary or secondary contributing factor for the supervisory concern.
NCUA requested that three changes be made to the Federal Credit Union Act that are technical and non-controversial.
"Change the Net Worth definition to allow certain loans and accounts established by the NCUA Board to count as net worth. NCUA‘s ability to resolve problem credit unions at the least cost to the NCUSIF has been limited by the Financial Accounting Standard Board‘s changes in accounting standards, in combination with the existing statutory definition of net worth. Since NCUA does not have the ability to adjust the definition of net worth similar to the Federal Deposit Insurance Corporation‘s authority, this results in the dilution of a credit union‘s net worth when it acquires another credit union, regardless of whether or not NCUSIF assistance is provided to facilitate the acquisition. This increases costs to resolve failed institutions and necessitates more outright liquidations instead of mergers. Liquidations immediately cut members off from credit union services.
Amend the Act to clarify that the equity ratio of the NCUSIF is based on NCUSIF only, unconsolidated financial statements. Evolving accounting standards could result in the consolidation of the financial statements of the NCUSIF with regulated entities when NCUA exercises its role as the government regulator and insurer by conserving failed institutions. The requested amendment would be consistent with Congress‘ original intent in defining the NCUSIF equity ratio, and prevent insured credit unions from being assessed artificially-inflated insurance premiums resulting from the consolidation of financial statements with failed institutions.
Streamline the operation of the Stabilization Fund. As currently written, the Stabilization Fund must borrow from the U.S. Treasury to obtain funds to make expenditures related to losses in the corporate credit union system. The Stabilization Fund then assesses federally insured credit unions to repay the U.S. Treasury borrowing over time. Relevant amendments to Section 217(d) of the Act would give NCUA the option of making premium assessments on federally insured credit unions in advance of anticipated expenditures, thereby avoiding borrowing directly from the U.S. Treasury. In addition, while the existing statutory language includes the implicit authority for ongoing advances, a clarification of this in the statute is recommended."
During the question and answer part of hearing before the Senate Banking Committee, NCUA Chairman Matz made some interesting comments:
1. NCUA will be issuing next year a proposed regulation on concentration limits.
2. NCUA will examine all state chartered credit unions with over $250 million in assets annually.
3. NCUA examiners were given guidance and told that credit unions get only one shot at addressing Documents of Resolutions. If credit unions do not comply within 90 to 120 days, NCUA will escalate administrative actions.
4. NCUA would like the authority to exam third party vendors.
5. A small number of credit unions are at the aggregate member business loan limit.
6. When asked about the number of problem credit unions, Chairman Matz answered 50 credit unions. (Editorial comment: At the end of October, there were 378 credit unions with either a CAMEL 4 or 5 rating. I suspect the 50 number is the number of credit unions that NCUA may have slated to close or involuntarily merge.)
To view the hearing, click on this link.
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