NCUA Is Rethinking P&A Rules
Because of the recession, the agency has had to redouble its efforts to find buyers for credit unions it or state regulators have liquidated. But credit unions, through CUNA and NAFCU, are urging the agency to come up with more guidance.
"We know that the NCUA's goal is to protect members and the insurance fund, but the agency hasn't always been clear about what they are looking for, in terms of timing of the purchase and assumption or what type of partnerships are acceptable," said NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt.
CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn said "the guidance issue is huge" for credit unions and added that some of the association's members are concerned that the NCUA has sent mixed signals about the process of finding potential merger partners or purchasers.
So far this year, the NCUA has liquidated nine credit unions and of those, seven have had assets purchased and assumed by other credit unions. There have also been nine assisted mergers.
The economy's weakness in certain regions has made it harder for the agency to find merger partners near certain troubled credit unions.
Last month, the agency facilitated Michigan-based United Federal Credit Union's purchase and assumption of the assets, loans and shares of Clearstar Financial Credit Union of Reno, Nev. Earlier this year, Alaska USA FCU bought the assets of two troubled California credit unions-the Members' Own FCU and High Desert FCU.
The agency has said it had no choice but to go far afield to find potential suitors, but it is looking at potential rules changes that could modify the process.
One possibility would be to break up a credit union so that its holdings are split among several credit unions. Therefore, the credit card portfolio could go one place, the member business loan portfolio could go elsewhere and the deposits could go somewhere else.
Hunt said in general NAFCU is "pleased that the board is thinking outside the box."
Several agency sources said the discussions are in the early stage and a proposal probably won't get to the board until after it considers its proposed rules for corporate credit unions at its November meeting.
NCUA Director of Public and Congressional Affairs John McKechnie declined to comment on any specific proposals or timetable but said, "The current economic realities affect the P&A process in that fewer credit unions, each with greater capital and earnings pressures, impacts the amount of assistance NCUA has to provide in assisted mergers and P&As. It also has a bearing on the extent to which there are candidates to assume the failed institution. This has implications for how the NCUA manages losses to the NCUSIF, and we are exploring ways to address this."
The issue is especially acute given the large number of troubled credit unions.
At the end of August, the most recent period for which the NCUA has released data, there were 315 credit unions-representing 4.55% of all insured shares-with CAMEL ratings of 4 or 5. By contrast, at the end of August 2008, there were 242 such credit unions, which represented 1.93% of insured shares.
The agency is also seeking to lessen the need for mergers by being more proactive earlier in the examination process.
NCUA Chairman Debbie Matz has spoken of the need to have examiners check 5300 reports for red flags, like an unusually high percentage of repossessed vehicles compared to auto loans, particularly if the credit union participates in indirect lending. Red flagged credit unions will receive a visit or call from an examiner in addition to the regular exam.
Dunn said she hopes the agency strikes a balance.
"They should identify problems early on, but in a way that doesn't overreact, and allows for a purchase and assumption, rather than getting it to the point where liquidation is necessary," she said.