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Problem CUs continue to be an NCUA focus
ALEXANDRIA, Va. (2/1/10)—National Credit Union Administration (NCUA) Chairman Debbie Matz Friday expressed concern at the agency’s open board meeting about the high number of CAMEL 3, 4, and 5 credit unions and the percentage of insured shares which they represent. Matz said, as she has before, that the NCUA is being proactive with respect to looking for “red flags” that indicate a credit union is experiencing problems which could lead to a CAMEL downgrade if not corrected. She added that credit unions with these red flags may be subject to unplanned examinations in order to help address their problems before a CAMEL downgrade is required. Areas of concerns mentioned by Matz included increased loan delinquencies, especially increased problems with indirect lending, loan participations, or other areas in which credit unions may not have undertaken sufficient due diligence regarding their business partners. Another warning sign Matz mentioned was credit union exposure to interest rate risk by making large numbers of fixed-rate mortgages and holding them in portfolio. Matz said that the agency is encouraging examiners to adopt a cooperative attitude and not be “bullying.” However, she warned that examiners will issue letters of resolution to credit unions unresponsive to examiners’ concerns. She added that the agency will also consider issuing letters of understanding and agreement, and possibly making those public, in those situations as well as taking other actions as needed to protect the National Credit Union Share Insurance Fund (NCUSIF). According to agency figures, there are currently 351 lowest-ranked CAMEL 4 and 5 credit unions, 80 more than at year-end 2008. They represent 5.82% of insured shares, up from 2.7% in 2008. Staff indicated that, in the aggregate, CAMEL 4 and 5 credit unions hold approximately $41.2 billion of insured shares. NCUA staff also noted that there are currently 1,688 CAMEL 3 credit unions, which represent 13.67% of insured shares. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 19.5% of insured shares. Also reported, the NCUSIF’s equity ratio is projected to be 1.24% as of the end of December 2009, down from 1.27% at the end of November 2009 and 1.30% at the end of September. The NCUA indicated that the decrease in the equity ratio was the result of an estimated 9.5% increase in member shares and deposits , higher than they expected and loss expenses. Insured shares is the denominator in determining the ratio, and therefore the higher denominator drives down the ratio. Another factor in the decrease, according to NCUA staff, was the agency’s decision in 2009 to expense an additional $270 million to the NCUSIF’s reserves beyond what had been budgeted. The NCUSIF’s reserves, which are not included in the insurance fund’s equity ratio, now stand at $758.7 million. A closed meeting of the board--during which the NCUA was scheduled to discuss supervisory activities and personnel matters—followed the open session. The board also voted to withdraw its 2008 Unfair or Deceptive Acts or Practices rule because it was made redundant by a 2009 law. (See related story: UDAP rule withdrawn, with a twist)
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