GREENBELT, Md. -- Combine an uncertain economy with an unknown size of the NCUA assessments to pay for the problems of corporate credit unions and you have a recipe for rocky days ahead.
That's the assessment made by Peter Duffy, an adviser to financial institutions, during remarks to the May 10 meeting of the Metropolitan Area Credit Union Management Association.
Duffy, an associate director at Sandler O'Neill & Partners, said part of the problem is that nobody knows the true value of the mortgage-backed securities that were held by the corporate credit unions. The NCUA is developing a plan for dealing with how to deal with those legacy assets.
Duffy said he is "agnostic," on the type of charter that he thinks financial institutions should have but then cited data that showed banks to be financial stronger than credit unions.
He said that 3% of all bank deposits are in institutions with CAMEL 4 or 5 ratings. By contrast, 5.5% of all credit union share accounts are in institutions with CAMEL 4 or 5 ratings.
In response to a question, he said that credit unions are also at a disadvantage because "the NCUA has a direct line into your vault." He said even if the economy continues to recover and credit unions see improvements, the assessment that the agency is likely to levy to pay back the loan from the Treasury Department will make things harder.
So far, the NCUSIF has borrowed $18 billion of its $30 billion line of credit.
Duffy, who has helped some credit unions convert to mutual bank charters, also said that credit unions face greater capital challenges than banks because during difficult financial times, banks' shareholders and debt holders will take a hit before the bank's capital does.
CUNA Chief Economist Bill Hampel, who was in the audience, challenged the premise of Duffy's argument and said that despite the problems facing financial institutions, the NCUSIF is in better shape than the FDIC.
Duffy began the session by answering questions from Credit Union Times Editor-in-Chief Sarah Snell Cooke and then responded to inquiries from some of the approximately 60 people in the audience.