Wednesday, November 9, 2011

Silver State Schools: A Cautionary Tale on Net Worth Assistance

Privately-insured Silver State Schools Credit Union last week released its third quarter financial statements and the credit union's financial condition continues to deteriorate.

But this commentary is not directed at Silver State Schools, but rather is a cautionary tale about net worth assistance.

Silver State Schools is reporting $24.2 million in net worth (capital) and a net worth ratio of 3.85 percent. However, slightly more than $22 million of its net worth is in the form of a subordinated loan from Silver State School's insurer, American Share Insurance (ASI).

Without this assistance, the credit union would be critically undercapitalized.

Moreover, if Silver State School's financial woes persist, ASI will most likely start taking impairment charges against its net worth assistance to Silver State Schools.

What has transpired with Silver State Schools and ASI has relevance to all credit unions.

Beginning on October 31, NCUA now has the authority to provide net worth assistance to troubled credit unions.

As I wrote on October 31, NCUA needs to clearly articulate under what circumstances such assistance will be extended, especially since the NCUA stated that it will not disclose which credit unions receive this assistance.


  1. Looks like another one bites the dust! At least the NCUSIF won't take a hit on this credit union turd. Time to pull the plug on this one. PCA can't help it at this point.

  2. Yes, Net Worth assistance tools were restored to NCUA this year.

    Net Worth or capital injections into banks and ABA member banks had been around for more than 80 years and the days of the 1930's Reconstruction Finance Corporation, through the recent but not yet cleaned-up $700 billion TARP program with capital support for the banks controlling nearly 80% of all banking assets, and continues today in amounts calculated in the billions. This, along with more than $16 trillion in revolving discounted Fed borrowing for banks in the past three years, over $3 trillion in asset guarantees, $200 billion in asset swaps without cost, opacity, secrecy, tax breaks, and lack of enforcement of what some call criminal negligence in bank management and fiduciary oversight.

    Contrast with the credit union sector where in the late 1990's ABA successfully lobbied to prohibit capital support to credit unions by federal regulators, in an effort to make any temporarily impaired competitor institution die faster for lack of access to temporary capital lines.

    Your post is a fitting reminder of the dark purposes of ABA.

  3. Listen folks this is all about survival of the fittest. SilverState is not fit to survive. The bail out from ASI was a lame attempt by ASI to cover its bet. Looks like the bet failed. The dark purpose at Silve State was by way of ASI. Silver State is already getting hiding behind some "not for profit tax exempt" status. How much more of a government bail out does it retuquire. They pay no taxes and they are still tanking. Shove a fork it it. It's done.

  4. ASI is a private insurer. How would the government bailout a privately-insured credit unioo? BTW, it is not "hiding behind a not for profit tax exempt status." Nevada does not impose a corporate income tax (making banks tax free in that state) and does enjoy the credit unions' federal tax exempt status. The "hiding" is the Subchapter S that do not pay federal corporate income taxes either.



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