FSOC Report on NCUA Actions Arising from GAO Report

The Financial Stability Oversight Council (FSOC) issued a report on the actions taken by NCUA in response to the Government Accountability Office (GAO) study from earlier this year.

GAO made two recommendations.

1. To better ensure that NCUA determines the accuracy of losses incurred from the failure of the five corporate credit unions, GAO recommended that the Chairman of NCUA provide its Office of Inspector General (OIG) the necessary supporting documentation to enable the OIG to verify the total losses incurred as soon as practicable.

2. To improve the effectiveness of the Prompt Corrective Action (PCA) framework, GAO recommended that the Chairman of NCUA consider additional triggers that would require early and forceful regulatory actions. The GAO stated that the NCUA Chairman should make recommendations to Congress on how to modify PCA for credit unions, and if appropriate, for corporate credit unions.

The FSOC report notes that the NCUA has taken actions to promote the accurate and transparent valuations of the legacy securities from the five failed corporate credit unions and provides a range of total potential corporate resolution costs. The report states that NCUA has created the NGN Securities Management and Oversight Committee and contracted with BlackRock Solutions to provide well-documented cost estimates and to put in place a process to track and evaluate costs going forward. NCUA will make public its analysis on a semi-annual basis.

The FSOC report points out that "while there is significant uncertainty about asset performance, the credit union system’s combined net worth and ability to pay assessments far exceeds even the extreme upper bound of potential losses from the corporate failures. Therefore losses to taxpayers as a result of the resolution of the corporate failures are extremely unlikely."

In addition, NCUA agreed with GAO on improving the effectiveness of PCA and "supports research into indicators that may be able to better assist in identifying troubled institutions earlier and with more precision." The report states that NCUA has formed a task force comprised of NCUA and State supervisors to undertake a review of NCUA's PCA regulations, especially risk-based net worth component. The report notes that NCUA will monitor developments at the federal banking agencies as they consider enhancements to their PCA framework.

FSOC report.