Interdependency Risk and An Emergency Merger

The current narrative from the credit union industry is that the emergency merger of Progressive Credit Union (New York, NY) into Pentagon Federal Credit Union (McLean, VA) saved the National Credit Union Share Insurance Fund (NCUSIF) from the loss that would have arisen from the failure of Progressive.

However, an untold story is about the interdependency risk associated with credit unions trying to prop up Progressive CU.

As I previously pointed out, Progressive Credit Union received an exemption from the nonmember deposit cap in 2015.

A document From the National Credit Union Administration (NCUA) noted that Progressive CU in recent years primarily funded itself through nonmember deposits, which were all from credit unions.

As of December 2018, the number of nonmember accounts at Progressive were 246. These dollar value of these nonmember deposits were slightly more than $76.8 million. Nonmember deposits comprised almost 32 percent of total deposits and shares at Progressive.

In addition, Progressive CU had $52 million in uninsured shares and deposits, of which $36.25 million were nonmember deposits.

Under the scenario where Progressive CU was liquidated in an insured depositor payoff, these uninsured deposits would absorb losses before the NCUSIF.

It is possible that some credit unions that funded Progressive CU could have become impaired. But only NCUA would know if this is the case.

This emergency merger seems to have more to do with keeping losses at Progressive from cascading to other credit unions.

The NCUA needs to seriously examine this issue of interdependency risk within the credit union industry.