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ALEXANDRIA, Va.-At the NCUA Board’s February meeting, Board Member Debbie Matz raised the issue of the increasing size of CAMEL 3 rated credit unions, just one step above becoming a `problem credit union’ as 4s and 5s are called. “I’m not sure why it’s happening, but the numbers are going up,” she told Credit Union Times. In 2001, CAMEL Code 3 credit unions over $100 million in assets were at 40; last year, that figure jumped to 68, according to NCUA data. Large CAMEL 3 institutions represented $27 billion in assets in 2001, which rose to $28 billion in 2002, $30 billion in 2003, and finally jumped to $48 billion in 2004. Perhaps even more telling are the figures on the percentage of insured shares in large CAMEL 3 institutions to all CAMEL 3s. In 2001, this figure stood at 32.7%, dipping slightly the next year to 31.5% only to jump to 41.1% in 2003. By the end of 2004, CAMEL 3 credit unions with more than $100 million in assets represented 60.9% of the insured shares among all CAMEL 3 credit unions. Insured shares in large CAMEL 3 credit unions represent 4.4% of all shares insured by the National Credit Union Share Insurance Fund, which is up from 1.8% in 2001. All CAMEL 3s are only 7.3% of all NCUSIF insured shares. “It’s still a very small percentage of the insurance fund so I don’t think it’s a threat to the fund,” Matz stated. But it is something worth keeping an eye on, she added, so NCUA can “get our arms around” the situation before it becomes an issue. Other implications may arise though, Matz pointed out. “There’s more of a chance of reputational risk because they (the larger CAMEL 3 credit unions) have more members. Perhaps members have more deposits with them,” she explained. Matz added, that reputational risk is one that is difficult to control. No one reason emerged as to why the number of large credit unions in the CAMEL 3 category is growing. In some instances, Matz said, the CEO drops the ball and the board does not recover quickly enough, or the credit union might have a high-risk portfolio. NCUA data show that only six of the 68 large CAMEL 3s at year-end 2004 had moved up from the CAMEL 4 category. The other 62 large CAMEL 3s had dropped down from either a CAMEL 1 or 2. NCUA Director of Examination and Insurance Dave Marquis was unavailable for comment. Matz said she does not think there is anything NCUA can do at this time except for examiners to maintain their vigilance. Even if one of these credit unions does drop into the `problem credit union’ category, that does not mean all is lost, she emphasized. Last year 57% of CAMEL 4 credit unions improved themselves to 3s. [email protected]

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