In a speech last week, National Credit Union Administration (NCUA) Board Member Rick Metsger indicated that the agency's hands were tied to address the excessive exposure of some credit unions to taxi medallion loans.
Metsger stated that NCUA was aware of and had warned about the risk of being too concentrated in taxi medallion loans, but according to the press release, "NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act that specifically exempted credit unions chartered for the purpose of making, or had a history of primarily making, member business loans, from the statutory member business lending cap. A Senate report on that legislation specifically noted taxi medallion lending was an example of loan activity that was exempt from the cap."
The Senate Report also mentioned specifically credit unions that financed fishing or shrimp boats, tractor trailers, church construction, or agriculture have an exception from the aggregate business loan cap. So, is NCUA's ability to curb risky lending by credit unions making these type of loans limited?
While the legislation exempted some credit unions from the business loan cap of 12.25 percent of assets, it did not mean that NCUA should abdicate its role of being a safety and soundness regulator.
NCUA did not have to allow these credit unions to put almost all of their assets in taxi medallion loans. NCUA still had the authority to limit these credit unions' exposure to taxi medallion loans, if this lending posed a safety and soundness risk.
For example, it could follow the lead of the Federal Deposit Insurance Corporation (FDIC). The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital.
As one commenter wrote to my December 8 blog post, NCUA could have issued a document of resolution (DOR) to each medallion lending credit union. This could have limited their concentration in taxi medallion loans and reduce the risk to the National Credit Union Share Insurance Fund.
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Our hands were tied?
ReplyDeleteOur hands were tied?
“We just HHAD to let Melrose originate $1.5B of their $2B in assets in taxi loans” while also selling participations”.
We had no choice but let Progressive sell $1B in taxi participation loans.
We just had to let Wescorp load the balance sheet with billions of alt a interest only arm mortgage securities.
We just had to let chetco accept non member deposits and fill their cu with bad mbl.
We just had to let parish issue secondary capital to other credit unions so that it could take over our failed supervisory mistake in alabama.
Metsger, you and McW have to go and so does your agency.
How does NCUA still exist?
ReplyDeleteOh, never mind...congress.
Totally agree with the sentiment against NCUA. The remaining credit unions will be left holding the bag for NCUA allowing these high concentrations in riskier loans. Credit unions have been hit harder for much less inherent risk, so they can't say they had no options. Ridiculous.
ReplyDeleteExactly. Ridiculous might even be too nice.
DeleteHANDS TIED? Nope. No way. You have unclean hands. Eating donuts and drinking coffee. Play the Safety & Soundness card on these credit unions with excessive concentrations in lending. Where were your NCUA Loan Specialists during this ramp up?
ReplyDeleteThe NCUA folks get a crack-pipe high running credit unions into a hole in the ground.
ReplyDeleteThey have developed Market Specialists with this expertise.
It is pathetic. The NCUA has learned nothing from the Corporate Credit Union mess. It is a 3 Ring Circus under the Big Tent & we have 2 Bozo's leading the charge. Appoint 1 more and call 'em the 3 Stooges. They are starting to make Debbie Matz look like a genis. Meanwhile CUNA & NAFCU drive the Clown Car
You make a good point.
DeleteNCUA is overbearing to the point of harmful with good credit unions, while taxi loans burn.
Nice job.
What’s everyone think of McW now?
DeleteWe can all agree taxi loans are a toxic asset, the better question is how is the NCUA going to get Melrose and Lomto out of this mess. They continue to spend 10s of millions of dollars in attorney fees chasing a handful of borrowers with the dream of executing judgments against assets that may not exist. In the meantime the asset value of the pledged collateral (medallion) has fallen 80% in New York and close to zero in markets like Chicago and Philadelphia. What should be their next step?
ReplyDelete