This is down from 132 undercapitalized credit unions at the end of the first quarter of 2012.
Seven credit unions were critically undercapitalized and 21 credit unions were significantly undercapitalized.
Wednesday, September 12, 2012
Undercapitalized Credit Unions, June 2012
There were 120 undercapitalized credit unions with $7.25 billion in assets as of June 30, 2012.
This is down from 132 undercapitalized credit unions at the end of the first quarter of 2012.
Seven credit unions were critically undercapitalized and 21 credit unions were significantly undercapitalized.
This is down from 132 undercapitalized credit unions at the end of the first quarter of 2012.
Seven credit unions were critically undercapitalized and 21 credit unions were significantly undercapitalized.
Tuesday, September 11, 2012
Video of Mortgage Recording Tax Case
The Court of Appeals, New York's highest court, has posted a video of the oral arguments in Hudson Valley Federal Credit Union v New York State Department of Taxation and Finance.
As background, Hudson Valley Federal Credit Union sued the state of New York and its tax department seeking a declaration that Hudson Valley FCU and other federal credit unions are exempt from New York's mortgage recording tax.
However, lower courts ruled against Hudson Valley FCU stating that the mortgage recording tax "is not a tax on property, but a tax upon the privilege of recording a mortgage."
Video of Oral Arguments
As background, Hudson Valley Federal Credit Union sued the state of New York and its tax department seeking a declaration that Hudson Valley FCU and other federal credit unions are exempt from New York's mortgage recording tax.
However, lower courts ruled against Hudson Valley FCU stating that the mortgage recording tax "is not a tax on property, but a tax upon the privilege of recording a mortgage."
Video of Oral Arguments
Monday, September 10, 2012
Report on NCUA's Examination and Compliant Processes for Small CUs
NCUA's Office of the Inspector General (IG) released a report on NCUA's examination and complaint processes for small credit unions.
The report was requested by Senator Tim Johnson, Chairman of United States Senate's Committee on Banking, Housing, and Urban Affairs.
The report found that "NCUA’s examination process has clear standards and policies to conduct examinations. However, we noted inconsistencies in the manner in which NCUA carried out the procedures to implement those policies."
The IG believed that the inconsistency arose from the agency’s organizational structure consisting of five separately run regional offices with each having its own supervision manual. The IG report found that no two regional supervision manuals were the same and each region had its own customized approach to conducting risk-focused examinations.
However the report concluded that the exam inconsistencies have been addressed by the implementation of a new National Supervision Policy Manual.
Furthermore, the report concluded that NCUA examinations were completed in a timely fashion. NCUA guidelines state examiners should complete all examinations/supervision contacts within 60 calendar days from the start date.
The report found that on average NCUA completed regular FCU and joint FISCU examinations in 28 days and 32 days, respectively. Also, credit unions with CAMEL composite ratings of 1 or 2 took less time to complete the exam than credit unions with CAMEL 4 or 5 composite ratings. The IG report noted that it takes a greater time commitment to work on troubled institutions.
The IG report found that "NCUA has an adequate appeals process, which allows credit unions to question examination results."
According to logs from the five regional offices, between January 1, 2007 and December 31, 2011, each regional offices averaged six examination-related complaints annually with an average resolution time of 43 days. According to the logs, 85 percent of the complaints were decided in favor of the agency.
The report did note that there were some operational and organizational deficiencies associated with compliance monitoring, the regional determination process, the Supervisory Review Committee, and the Ombudsman position, respectively. For example, the report found that "Ombudsman position does not organizationally report directly to either the agency’s highest-ranking official or the NCUA Board, as required by the criteria which originally established the position."
Read the report.
The report was requested by Senator Tim Johnson, Chairman of United States Senate's Committee on Banking, Housing, and Urban Affairs.
The report found that "NCUA’s examination process has clear standards and policies to conduct examinations. However, we noted inconsistencies in the manner in which NCUA carried out the procedures to implement those policies."
The IG believed that the inconsistency arose from the agency’s organizational structure consisting of five separately run regional offices with each having its own supervision manual. The IG report found that no two regional supervision manuals were the same and each region had its own customized approach to conducting risk-focused examinations.
However the report concluded that the exam inconsistencies have been addressed by the implementation of a new National Supervision Policy Manual.
Furthermore, the report concluded that NCUA examinations were completed in a timely fashion. NCUA guidelines state examiners should complete all examinations/supervision contacts within 60 calendar days from the start date.
The report found that on average NCUA completed regular FCU and joint FISCU examinations in 28 days and 32 days, respectively. Also, credit unions with CAMEL composite ratings of 1 or 2 took less time to complete the exam than credit unions with CAMEL 4 or 5 composite ratings. The IG report noted that it takes a greater time commitment to work on troubled institutions.
The IG report found that "NCUA has an adequate appeals process, which allows credit unions to question examination results."
According to logs from the five regional offices, between January 1, 2007 and December 31, 2011, each regional offices averaged six examination-related complaints annually with an average resolution time of 43 days. According to the logs, 85 percent of the complaints were decided in favor of the agency.
The report did note that there were some operational and organizational deficiencies associated with compliance monitoring, the regional determination process, the Supervisory Review Committee, and the Ombudsman position, respectively. For example, the report found that "Ombudsman position does not organizationally report directly to either the agency’s highest-ranking official or the NCUA Board, as required by the criteria which originally established the position."
Read the report.
Friday, September 7, 2012
NCUA Sues UBS Securities
The National Credit Union Administration (NCUA) is suing UBS Securities over the sale of more than $1.1 billion of mortgage-backed securities to U.S. Central Federal Credit Union (US Central) and Western Corporate Federal Credit Union (WesCorp). Both corporate credit unions subsequently failed.
The lawsuit, which was filed in Federal District Court in Kansas, alleges UBS Securities violated federal and state securities laws. NCUA argues that UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions.
The complaint also claims systemic disregard of the underwriting guidelines stated in the offering documents.
These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal.
In its complaint, NCUA requested a jury trial.
NCUA has filed five similar lawsuits against J.P. Morgan Securities, LLC, RBS Securities, Goldman Sachs, and Wachovia. In addition, the agency has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC.
Read the press release. Read the complaint.
The lawsuit, which was filed in Federal District Court in Kansas, alleges UBS Securities violated federal and state securities laws. NCUA argues that UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions.
The complaint also claims systemic disregard of the underwriting guidelines stated in the offering documents.
These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal.
In its complaint, NCUA requested a jury trial.
NCUA has filed five similar lawsuits against J.P. Morgan Securities, LLC, RBS Securities, Goldman Sachs, and Wachovia. In addition, the agency has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC.
Read the press release. Read the complaint.
Thursday, September 6, 2012
Secondary Capital
Given NCUA's recent decision to designate over 1,000 federal credit unions as low-income credit unions, the agency needs to revisit its regulations governing secondary or supplemental capital for low-income designated credit unions.
Low-income credit unions have the authority to issue secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF.
However, NCUA in a 2010 report noted its experience with the depletion of supplemental capital accounts at corporate credit unions and low-income designated credit unions had raised reservations.
NCUA acknowledged that heighten disclosures may not be sufficient to inform investors about the risk and uninsured status of the secondary capital accounts. Moreover, in an August 14, 2003 letter to Representatives Oxley, Frank, and Sherman, the agency wrote that "experience has shown that when uninsured accounts are offered to natural-person customers of a financial institution, and then the accounts suffer losses, confusion about insured status and issues of reputation risk and systemic confidence result."
NCUA needs to develop and enforce disclosure standards sufficient to inform prospective investors of the risk and uninsured status of such supplemental capital accounts. The agency also needs to put in place suitable standards to protect investors and credit union members.
Furthermore, if credit unions are allowed to offer these accounts to one another, this could increase systemic risk. Ideally, a credit union investing in secondary capital issued by a low-income credit union should be required to deduct this investment from its net worth. However, credit union net worth standards are written into law, so NCUA does not have this discretion. The next best alternative is for NCUA to put into place real and meaningful limits on the amount that credit unions may invest of their net worth in the secondary capital of a low-income credit union.
Additionally, secondary capital is not core capital and no credit union should rely entirely on secondary capital as its source of net worth. NCUA needs to specify a required minimum amount of primary capital that a low-income credit union should hold.
NCUA is well aware of these issues; but has failed to act. NCUA needs to promulgate regulations overseeing these concerns with respect to secondary capital.
Low-income credit unions have the authority to issue secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF.
However, NCUA in a 2010 report noted its experience with the depletion of supplemental capital accounts at corporate credit unions and low-income designated credit unions had raised reservations.
NCUA acknowledged that heighten disclosures may not be sufficient to inform investors about the risk and uninsured status of the secondary capital accounts. Moreover, in an August 14, 2003 letter to Representatives Oxley, Frank, and Sherman, the agency wrote that "experience has shown that when uninsured accounts are offered to natural-person customers of a financial institution, and then the accounts suffer losses, confusion about insured status and issues of reputation risk and systemic confidence result."
NCUA needs to develop and enforce disclosure standards sufficient to inform prospective investors of the risk and uninsured status of such supplemental capital accounts. The agency also needs to put in place suitable standards to protect investors and credit union members.
Furthermore, if credit unions are allowed to offer these accounts to one another, this could increase systemic risk. Ideally, a credit union investing in secondary capital issued by a low-income credit union should be required to deduct this investment from its net worth. However, credit union net worth standards are written into law, so NCUA does not have this discretion. The next best alternative is for NCUA to put into place real and meaningful limits on the amount that credit unions may invest of their net worth in the secondary capital of a low-income credit union.
Additionally, secondary capital is not core capital and no credit union should rely entirely on secondary capital as its source of net worth. NCUA needs to specify a required minimum amount of primary capital that a low-income credit union should hold.
NCUA is well aware of these issues; but has failed to act. NCUA needs to promulgate regulations overseeing these concerns with respect to secondary capital.
Tuesday, September 4, 2012
Pension Shortfall at Commonwealth CU?
Credit Union Journal (paid subscription) is reporting that Kentucky's Commonwealth Credit Union may face a pension funding shortfall of approximately $60 million, which could put a serious dent in the net worth position of the credit union.
Commonwealth CU participates in the Kentucky Employees Retirement System (KERS), which is severely under-funded. Starting in fiscal year 2014, new Governmental Accounting Standards Board rules will require KERS to split out and pass down to all program participants their share of the under-funding.
Commonwealth CU did not respond to request for comments from Credit Union Journal.
Commonwealth CU participates in the Kentucky Employees Retirement System (KERS), which is severely under-funded. Starting in fiscal year 2014, new Governmental Accounting Standards Board rules will require KERS to split out and pass down to all program participants their share of the under-funding.
Commonwealth CU did not respond to request for comments from Credit Union Journal.
Sunday, September 2, 2012
Minn. FCUs Can Make Unlimited Biz Loans to Lake Wobegon
In order to speed the recovery to the Gulf region affected by Hurricane Isaac, the National Credit Union Administration (NCUA) announced that all federal credit unions headquartered in Minnesota will be designated as low-income credit unions.
In making the decision to designate all Minnesota federal credit unions as low-income, NCUA Chairman Debbie Matz stated: "Most Americans consider themselves of modest means."
NCUA Chairman Matz further justified the agency's action by stating that the Mississippi River starts in Minnesota and flows into the Gulf.
NCUA stated that this action would allow Minnesota credit unions to make unlimited business loans to the residents of Lake Wobegon.
Upon hearing the news, Garrison Keillor applauded NCUA's decision by declaring all credit union business loans to Lake Wobegon are above average.
In making the decision to designate all Minnesota federal credit unions as low-income, NCUA Chairman Debbie Matz stated: "Most Americans consider themselves of modest means."
NCUA Chairman Matz further justified the agency's action by stating that the Mississippi River starts in Minnesota and flows into the Gulf.
NCUA stated that this action would allow Minnesota credit unions to make unlimited business loans to the residents of Lake Wobegon.
Upon hearing the news, Garrison Keillor applauded NCUA's decision by declaring all credit union business loans to Lake Wobegon are above average.
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