Federally insured, state-chartered credit unions haveconsistently reported higher rates of delinquencies and charge-offson loan participations.

The NCUA pointed that out in December after releasing a proposalthat would extend what it calls are protections on loanparticipations to all federally insured credit unions.

The distinction is notable given the recent takeover of the $318million Telesis Community Credit Union, which experienced financialtroubles based in large part to its business lending and loanparticipation activities.

According to NCUA June 2011 Call Report data, 1,401 federallyinsured credit unions held over $12.4 billion worth of outstandingloan participations. Since 2007, loan participation balances have grown significantly – up 28%over the last four years.

Federally insured, state-chartered credit unions represented 68%of all participations sold and 55% of participations bought, theNCUA said.

At the time of the proposal release, NCUA Chairman Debbie Matzsaid loan participations are a valuable tool for credit unions todiversify loan portfolios, improve earnings and manage theirbalance sheets.

“However, loan participations have the potential to createsystemic risk,” Matz said at the time. “Large volumes ofparticipated loans tied to a single originator, borrower, orindustry – or serviced by a single entity – have the potential toimpact multiple credit unions if problems occur.”

Under the NCUA's loan participation proposal, originators would be required toretain 10% of the original loan risk. Federal credit unions arealready subject to this requirement.

Loan participations purchased from one originating lender couldnot exceed 25% of net worth. Participation loans to one borrowercould not exceed 15% of net worth. Credit unions could apply to theNCUA's regional directors for waivers of these limits.