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NCUA failed to address securities risks before Southwest Corp. conservatorship OIG says
ALEXANDRIA, Va. (9/29/11)--The National Credit Union Administration’s (NCUA) Office of Corporate Credit Unions (OCCU) failed to identify or address risks caused by Southwest Corporate FCU's exposure to privately issued residential-backed securities before that corporate's conservatorship, the agency's inspector general has found. The agency estimated losses from this corporate failure would total $141 million. The OIG report specifically found that OCCU staff did not “take exception with Southwest’s increasing and significant concentrations of RMBS early on.” The report further noted that the NCUA did not prepare its own full analysis of the credit union’s credit risk, but instead analyzed Southwest management's understanding of its own credit risk. The credit union’s understanding of its own risk was limited by its own “tools and decision processes,” the OIG said. As a result, the agency lacked a full understanding of the corporate’s concentration of RMBS’s or the credit, market and liquidity risks posed by those securities. However, the report did not only fault NCUA examiners. The report found that NCUA regulations “focused on investment ratings and only required corporates to address concentrations of credit risk in their respective policies, leaving it up to each corporate to determine its risk levels/limits.” The OIG said this “loosely worded requirement” limited the OCCU’s ability to mitigate the conditions that led to Southwest’s high concentrations of securities, a move that could have prevented the conservatorship and liquidation of the credit union and reduced the losses to the corporate stabilization fund. For the full OIG report, use the resource link.
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