What is NCUA's Plan for Texans Credit Union?

This is a question being asked by credit union officials and bankers. Read Texas Bankers Association's letter to NCUA Chairman Matz.

As background, Texans Credit Union (Richardson, Texas) was placed into conservatorship by NCUA on April 15, 2011. During the third quarter of 2011, the credit union became critically undercapitalized. In November 2011, Texans received special capital assistance from NCUSIF in the form of $60 million in subordinated debt; otherwise Texans would have been insolvent. Even after the capital assistance, Texans was still critically undercapitalized at the end of the fourth quarter.

It appears that NCUA is engaged in regulatory forbearance. I know there are some within the credit union industry who believe that this capital infusion and forbearance is good news and if given enough time, the NCUA-controlled Texans might experience a turnaround. (read Chip Filson's latest commentary).

However, allowing an insolvent credit union or bank to continue to operate as a fully functioning depository institution is unfair to its competitors.

Moreover, the odds are that this forbearance will fail and it will only raise the cost of Texans' resolution to the NCUSIF.

But time may be running out for Texans Credit Union.

According to the Federal Credit Union Act and NCUA's regulation, the NCUA Board must place a credit union into liquidation if it remains “critically undercapitalized” for a full calendar quarter, on a monthly average basis, following a period of 18 months from the effective date the credit union was first classified “critically undercapitalized.”

If the ultimate outcome is liquidation, credit union officials should ask NCUA why it did not move sooner and how much more did the delay add to the losses of the NCUSIF.

Also, from what I've heard, NCUA has rejected bids for Texans from credit unions. As I understand it, the obstacle to getting the deal done was that the acquirer wanted NCUA to enter into a loss sharing agreement and NCUA refused to enter into such an arrangement.

I don't understand NCUA's resistance to a loss sharing arrangement. Many of FDIC's transactions involving failed banks included such arrangements.

If NCUA is worried that it can't fetch a good price for Texans, it should expand the pool of potential bidders. There are probably some banks that would be interested in bidding for Texans.