The American Bankers Association said while “it is sad to see a financial institution fail,” it saw red flags with the now-conserved $1.6 billion Texans Credit Union as far back as 2005.
The banking trade group and the Texas Bankers Association penned a Sept. 30, 2005 letter to the NCUA claiming Texans CU was in violation of its aggregate member business lending limit. Keith Leggett, ABA vice president and senior economist, provided Credit Union Times with the letter.
The banking groups pointed to information reported on Schedule B of NCUA’s Form 5300, that showed Texans reported 123 member business loans with outstanding balances of $347,436,609 as of June 2005. Texans assets as of June 2005 were $1,466,750,849.
"In other words, almost 23.7% of the credit union’s assets were in member business loans – nearly double the statutory limit,” wrote Leggett and Rick Smith, then TBA’s president/CEO.
Addressed to NCUA General Counsel Robert Fenner, the letter also claimed Texans did not qualify for an exception from the aggregate MBL limit and was in violation of the Federal Credit Union Act.
On Nov. 17, 2005, Fenner responded in a letter that Texans was not in violation because the data on the NCUA 5300 Call Report “erroneously reported that Texans Credit Union was in excess of the statutory and regulatory limits.”
While “bad management decisions” resulted in the conservatorship of the Texans, both NCUA and the Texas Credit Union Department were negligent in their oversight of Texans Credit Union, Leggett told Credit Union Times on Thursday.
“Texans CU grew its business lending operation too rapidly. Whenever an institution grows a business line very rapidly, especially a riskier activity such as commercial lending, there is an increased probability that internal controls will fail,” Leggett said.
Meanwhile, CUNA has said the number of credit union conservatorships does not compare to the number of recent bank failures.