Before adjourning, Congress passed credit union legislation (S. 4036) requested by National Credit Union Administration (NCUA).
The bill includes three technical amendments. One measure will clarify the application of an accounting standard that enables the NCUA to provide capital assistance to troubled credit unions, thereby encouraging mergers with healthy credit unions.
The other amendments will allow the NCUA to assess premiums for expenditures related to the Temporary Corporate Credit Union Stabilization Fund without first borrowing from Treasury, and clarify that the National Credit Union Share Insurance Fund equity ratio is based solely on its own unconsolidated financial statements.
The bill will also require the Government Accountability Office (GAO) to study the NCUA’s supervision of corporate credit unions and implementation of prompt corrective action. The legislation mandates that the GAO determine the reasons for the corporate credit union failures, and also evaluate the NCUA’s response to those failures. The measure also requires the GAO to evaluate the NCUA’s use of prompt corrective action with corporate credit unions and natural person credit unions and the agency's implementation of recommendations contained in previous reports from its own inspector general financial crisis. The completed report will go to the Senate Banking Committee, the House Financial Services Committee and the Financial Stability Oversight Council.
Monday, December 27, 2010
Friday, December 24, 2010
Wall Street Journal: NCUA Budget Criticized by CUs
The Wall Street Journal is reporting how NCUA's budget is drawing criticism from credit unions.
The 2011 budget for the National Credit Union Association will rise 12 percent. NCUA Chairman Debbie Matz justifies the increase stating: "Times are difficult, and we are very mindful of that, [but] we are not going to cut corners on safety and soundness,"
The 2011 budget for the National Credit Union Association will rise 12 percent. NCUA Chairman Debbie Matz justifies the increase stating: "Times are difficult, and we are very mindful of that, [but] we are not going to cut corners on safety and soundness,"
Thursday, December 23, 2010
New Fiduciary Duty Standards and Disclosure of Enforcement Actions
Will NCUA's new fiduciary responsibility rule mean that federal credit unions will have to make public enforcement orders to the credit unions' membership?
As readers of this blog know, I have derided the NCUA about not making public all enforcement actions, such as Letters of Understanding and Agreement and other consent orders.
However, the new standards of fiduciary duty for federal credit union directors adopted by NCUA Board on December 16 may result in these enforcement actions being made public by federal credit unions.
The final rule will require directors to act in the best interests of credit union members, particularly in connection with matters affecting the fundamental rights of members.
In my estimation, regulatory enforcement orders are material events that affect the fundamental rights of credit union members and therefore, should be disclosed. Members have the right to know whether management and the board have engaged in unsafe and unsound banking practices or have violated the law.
Not disclosing this information could be viewed as a breach of the directors' fiduciary duty.
Now, if only we could get NCUA to practice what it preaches. If NCUA really believes that part of its job is to protect the interest of credit union members, shouldn't the agency publish all enforcement actions?
As readers of this blog know, I have derided the NCUA about not making public all enforcement actions, such as Letters of Understanding and Agreement and other consent orders.
However, the new standards of fiduciary duty for federal credit union directors adopted by NCUA Board on December 16 may result in these enforcement actions being made public by federal credit unions.
The final rule will require directors to act in the best interests of credit union members, particularly in connection with matters affecting the fundamental rights of members.
In my estimation, regulatory enforcement orders are material events that affect the fundamental rights of credit union members and therefore, should be disclosed. Members have the right to know whether management and the board have engaged in unsafe and unsound banking practices or have violated the law.
Not disclosing this information could be viewed as a breach of the directors' fiduciary duty.
Now, if only we could get NCUA to practice what it preaches. If NCUA really believes that part of its job is to protect the interest of credit union members, shouldn't the agency publish all enforcement actions?
Wednesday, December 22, 2010
Customer Satisfaction at CUs Drop
According to the American Customer Satisfaction Index, credit unions suffered a sharp drop in customer satisfaction. The satisfaction index fell by almost 5 percent to 80.
Difficulties associated with managing rapid growth along with financial losses were cited as contributing factors to the decline in customer satisfaction. The December 14 press release states:
Credit unions and community banks have the same satisfaction index.
To read the press release, click here.
Difficulties associated with managing rapid growth along with financial losses were cited as contributing factors to the decline in customer satisfaction. The December 14 press release states:
"Since credit unions can’t raise capital by selling stock, the only recourse to recover losses is through cost-cutting, which usually leads to less customer service, or raising fees, which leads to higher customer cost."
Credit unions and community banks have the same satisfaction index.
To read the press release, click here.
Tuesday, December 21, 2010
NCUA Wants Ability to Examine Third-Party Vendors
A legislative priority for NCUA in the next Congress is the ability to examine third-party vendors, such as credit union service organizations (CUSOs).
In her December 9th testimony, NCUA Chairman Debbie Matz stated:
The Government Accountability Office (GAO) back in 2003 expressed concerns writing that "the lack of such authority could limit NCUA’s effectiveness in ensuring the safety and soundness of credit unions."
In fact, GAO's warnings became a reality in recent years. For example, third-party vendors were cited as playing a role in several high profile credit union failures -- Cal State 9 CU, Norlarco CU, and Huron River Area CU.
It seems prudent that NCUA should be granted this authority to examine third-party vendors.
Credit unions are making greater reliance on these third-party vendors. Without the ability to examine these entities, credit unions are increasingly exposed to operational and reputational risk.
Until NCUA is granted this authority, NCUA should put in place a moratorium on granting new authorities for third-party vendors such as CUSOs.
In her December 9th testimony, NCUA Chairman Debbie Matz stated:
"NCUA is the only regulator subject to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 that does not have authority to perform examinations of vendors which provide services to insured institutions. Credit unions are increasingly relying on third-party vendors to support technology-related functions such as internet banking, transaction processing, and funds transfers. Vendors are also providing important loan underwriting and management services for credit unions. The third-party arrangements present risks such as threats to credit risk, security of systems, availability and integrity of systems, and confidentiality of information. Without vendor examination authority, NCUA has limited authority to minimize risks presented by vendors."
The Government Accountability Office (GAO) back in 2003 expressed concerns writing that "the lack of such authority could limit NCUA’s effectiveness in ensuring the safety and soundness of credit unions."
In fact, GAO's warnings became a reality in recent years. For example, third-party vendors were cited as playing a role in several high profile credit union failures -- Cal State 9 CU, Norlarco CU, and Huron River Area CU.
It seems prudent that NCUA should be granted this authority to examine third-party vendors.
Credit unions are making greater reliance on these third-party vendors. Without the ability to examine these entities, credit unions are increasingly exposed to operational and reputational risk.
Until NCUA is granted this authority, NCUA should put in place a moratorium on granting new authorities for third-party vendors such as CUSOs.
Saturday, December 18, 2010
A.E.A. FCU Placed into Conservatorship
NCUA announced that A.E.A. FCU of Yuma, Ariz. was placed into conservatorship.
A.E.A. Federal Credit Union was placed into conservatorship due to declining financial condition. The credit union was significantly undercapitalized with a net worth ratio of 2 percent as of September 2010.
NCUA cited that the credit union has earnings insufficient to enable it to continue under present management. The credit union reported a 2009 loss of almost $25.9 million and a year-to-date loss of nearly $4.7 million.
As of September 2010, the credit union reported that 19.12 percent of its loans were 60 days or more past due. The credit union’s difficulties stemmed from problems in its commercial loan portfolio, where $45.5 million in business loans were 60 days or more past due. This translates into 64.27 percent of its business loans being delinquent.
Recently, Bill Liddle, who formerly managed AEA's business loan department, his wife and local businessman Frank Ruiz were indicted by a grand jury in an alleged kickback scheme related to business loans made to Ruiz.
A.E.A. Federal Credit Union was placed into conservatorship due to declining financial condition. The credit union was significantly undercapitalized with a net worth ratio of 2 percent as of September 2010.
NCUA cited that the credit union has earnings insufficient to enable it to continue under present management. The credit union reported a 2009 loss of almost $25.9 million and a year-to-date loss of nearly $4.7 million.
As of September 2010, the credit union reported that 19.12 percent of its loans were 60 days or more past due. The credit union’s difficulties stemmed from problems in its commercial loan portfolio, where $45.5 million in business loans were 60 days or more past due. This translates into 64.27 percent of its business loans being delinquent.
Recently, Bill Liddle, who formerly managed AEA's business loan department, his wife and local businessman Frank Ruiz were indicted by a grand jury in an alleged kickback scheme related to business loans made to Ruiz.
Thursday, December 16, 2010
Assets and Deposits at Problem Credit Unions Decline During November
During its update on the NCUSIF, NCUA reported that the number of problem credit unions declined by 6 during November to 372; but is up by 21 since the end of 2009. A problem credit union is defined as a credit union that has a CAMEL code of 4 or 5.
Between the end of October and the end of November, shares (deposits) and assets in problem credit unions fell by $800 million to $38.3 billion and $1 billion to $43.4 billion, respectively. NCUA reported that problem credit unions held 5.10 percent of the credit union industry’s insured shares and 4.80 percent of the industry’s assets.
The number of problem credit unions with assets of $1 billion or more was unchanged during the month at 12, although shares fell by $100 million to $16.8 billion.
Problem credit unions with between $500 million and $1 billion in assets fell by 2 during November to 6. This decline in problem credit unions in the $500 million to $1 billion asset size category led to a $1.1 billion reduction in aggregate shares to $3.5 billion.
NCUA noted that the number of problem credit unions with between $100 million and $500 million in assets increased by 1 to 61 and aggregate shares increased by $500 million to $13.6 billion.
Between the end of October and the end of November, shares (deposits) and assets in problem credit unions fell by $800 million to $38.3 billion and $1 billion to $43.4 billion, respectively. NCUA reported that problem credit unions held 5.10 percent of the credit union industry’s insured shares and 4.80 percent of the industry’s assets.
The number of problem credit unions with assets of $1 billion or more was unchanged during the month at 12, although shares fell by $100 million to $16.8 billion.
Problem credit unions with between $500 million and $1 billion in assets fell by 2 during November to 6. This decline in problem credit unions in the $500 million to $1 billion asset size category led to a $1.1 billion reduction in aggregate shares to $3.5 billion.
NCUA noted that the number of problem credit unions with between $100 million and $500 million in assets increased by 1 to 61 and aggregate shares increased by $500 million to $13.6 billion.
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