What Does Conservatorship Mean?

Recently, I received an e-mail from a credit union member asking what does the conservatorship of Texans CU mean and what can a credit union member do about the conservatorship.

A conservatorship means that NCUA has assumed control of a credit union in order to ensure a credit union’s financial stability and safe-and-sound operation. In a conservatorship, NCUA attempts to address issues related to a credit union’s financial condition while ensuring uninterrupted services to the credit union's members.

Members should not worry about their funds because their deposits are insured to the federal limit, which is $250,000 per member.

However, when NCUA places a credit union into conservatorship, it removes the credit union's board of directors and senior management.

Furthermore, NCUA does not impose any limits on how long a credit union can be conserved. For example, Keys Federal Credit Union was seized by NCUA on September 24, 2009 and is still under conservatorship nearly 18 months later.

While the goal of the conservatorship is to return the credit union back to the members, this may not always be the outcome. Some credit unions are in such deep financial distress that they ultimately are liquidated or merged into a healthy credit union.

For example, NCUA liquidated St. Paul Croatian FCU after it was placed into conservatorship last April. Family First FCU, which was placed into conservatorship last July 30th, was acquired by Security Service FCU in a purchase and assumption transaction on February 15, 2011.

As for what a member can do, I don't think there is much a credit union member can do about the conservatorship. All you have to do is look at the June 2010 conservatorship of Arrowhead Central CU in California. There were some members and community leaders that opposed the conservatorship; but I don't think their opposition had any impact on NCUA.