NCUA E&I Director Love Tells NCUA Board That Reserves May Not Cover Losses
ALEXANDRIA, Va. -- There is a good chance that the reserves set aside for losses in the NCUSIF "won't be sufficient," to cover the losses at some of the large credit unions, NCUA Office of Examination and Insurance Director Melinda Love told the NCUA Board last Thursday.
And Deputy Executive Director Larry Fazio told the board that the health of the Temporary Corporate Credit Union Stabilization Fund will be hurt by bond defaults within corporate credit unions of $7.6 billion during the next two years. The fund has $6.4 billion set aside for losses for this year and must repay the Treasury Department $690 million over the next six years. The department gave the NCUA a $3 billion line of credit last year, but the agency has used only $690 million.
NCUA Board Member Michael Fryzel raised the possibility of extending the repayment period to 10 years, and Fazio said that could only be done with the approval of the Treasury secretary.
Love said the financial reports of credit unions have shown "very mixed results." While the increase of CAMEL 3, 4 and 5 credit unions has slowed, some of the larger credit unions have continued to experience difficulty because of the economy.
Love said the agency's staff needs to review second-quarter results before determining what assessment level to recommend to the full board and the recommendation will come to the board this fall.
Through April, the NCUSIF had lost $138.1 million this year. That is lower than the projected $218 million loss the agency projected. But the agency increased its reserve balance to $896.3 million, from $726.7 million at the beginning of April.
Fazio said that the staff will have a recommendation on the assessment for the TCCUSF this summer.
This is the first time the agency is going to break out the assessments for the NCUSIF and TCCUSIF separately.
NCUA Chief Financial Officer Mary Ann Woodson told the NCUA Board that 19.25% of insured shares were in credit unions with a rating of CAMEL 3 or higher at the end of April, compared with 19.5% at the end of February. The NCUSIF equity ratio was at 1.24%, compared with 1.26% at the end of March.
She said that 14.4% of insured shares were in CAMEL 3 credit unions, compared with 13.9% at the end of March. She reported that 5.94% of shares were at CAMEL 4 and 5 credit unions at the end of April, compared with 5.68% at the end of March.
There have been 12 failures of federally insured credit unions this year, compared with 28 in all of 2009.
The NCUA Board also voted to extend the Temporary Corporate Credit Union Liquidity Guarantee Program to Sept. 30, 2011. It was scheduled to expire on June 30. The guaranteed debt will expire on June 30, 2017, instead of June 30, 2012.