Friday, February 24, 2012

Once Burned, Twice Shy

What has been the willingness of large credit unions to recapitalize the corporate credit union system after the corporate credit union debacle?

The data suggests that large credit unions are less likely to invest in a corporate credit union and if they invest, they will not hold as large of an exposure to corporate credit unions.

Our analysis compares the capital holdings (membership and paid-in capital) of large natural person credit unions as of December 2007 (defined as pre-crisis) and September 2011 (post-crisis). A large natural person credit union is defined as a credit union with at least $100 million in assets as of September 2011.

As of September 2011, there were 1,429 credit unions with at least $100 million in assets that were also in existence on December 2007.

Two privately insured credit unions were removed from the analysis due to missing data on their equity holdings in corporate credit unions at the end of 2007. Also, 54 credit unions never owned any capital in a corporate credit union on the two dates and were removed from the analysis. This left 1373 credit unions.

Out of this 1373 credit unions, 1,352 credit unions had an equity position in a corporate credit union at the end of 2007 with an aggregate investment of $2.62 billion. By September 2011, the number of credit unions holding capital in corporate credit unions had fallen to 932 -- a decline of almost 31 percent -- with an aggregate capital investment of $965 million.

In addition, 1,099 credit unions reported reducing the amount of capital they held in corporate credit unions between December 2007 and September 2011, while 233 large credit unions increased their capital investments in the corporate credit union system. Forty-one credit unions did not change the size of their capital investments in corporate credit unions.

There also appears to be an inverse relationship between the size of the credit union and its willingness to invest in a corporate credit union. Only 59 percent of credit unions with assets in excess of $1 billion had a capital investment in a corporate credit union as of September 2011, while 69 percent of credit unions with between $100 million and $500 million in assets were member-owners of a corporate credit union.


  1. Fool me once shame on you. Fool me twice shame on me. This credit union Board of Directors voted to NEVER AGAIN recapitalize a corporate credit union with "at risk" capital. To recapitalize a corporate credit union today would be a waste of credit union assets. The only real shock in all of this analysis is the number of large credit unions that appear to be stuck on stupid and continue to have "at risk" skin in the game.

  2. to anonymous above....AMEN.
    There will be some heads rolling in "C" suites when their boards find out how uninformed their management has allowed them to be.
    NCUA was told by GAO way back in 1995 to make it more clear to cu's that their MEMBER'S capital at ccu's was "at risk". NCUA never did. Some managements knew better but were more interested in "the movement" than what was best for their cu and its members



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