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Regulator response to Eastern Financial inadequate NCUA IG
ALEXANDRIA, Va. (5/26/10)—The National Credit Union Administration’s (NCUA) Office of the Inspector General (OIG) in a recently completed report found that NCUA and Florida State Supervisory Authority (SSA) efforts to oversee the financial goings on of the now-failed Eastern Financial Florida CU (EEFCU) were “not adequate or timely.” The NCUA OIG in its report noted that it “found no evidence that the Florida SSA adequately evaluated compliance of EFFCU’s collateralized debt obligation (CDO) policies or initial CDO purchases with the provisions in the SSA letter.” EFFCU’s investments in CDOs, which totaled $149.2 million at one point, ultimately resulted in $149.2 million in total losses and precipitated the failure of the credit union and its eventual merger into Space Coast CU. The examiners also “should have deemed the planned CDO investment activity as a higher risk warranting greater supervisory efforts,” and should have sought outside expertise to deal with these investments, if needed. In a letter responding to the report, NCUA Executive Director David Marquis said that the NCUA recognizes that “there were early opportunities to better understand the depth of the risks” and to increase supervisory efforts” of the credit union. Following EEFCU’s issues, the NCUA has “intensified its monitoring and supervision efforts,” Marquis added. The Florida SSA also responded, telling News Now that the report “fails to recognize and take into account that the crash of the real estate market in 2007 was unforeseen by almost everyone including rating agencies, professional investors, private investors and mainstream America; regulators were no exception.” The report did note the role that the alarming and suddent market changes had in EFFCU’s deteriorating financial state. The Florida SSA said that it did “take every opportunity” to learn from these market changes and does “take them into consideration” as it enforces its statutes and works to “ensure proper policies and procedures are in place to help credit unions manage risks.” For the full NCUA release, use the resource link.
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