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| Spotting the high risks… |
Here's a brief follow-up on a couple of comment questions, which asked for a bit of "fact checking" on the McKenna Congressional testimony posts.
One of the points that the NCUA has manufactured to justify its new risk-based capital (RBC) proposal is the "high risk" threat posed by "large, complex" credit unions to the NCUSIF.
As mentioned, the NCUA in its RBC proposal attempts to change the Federal Credit Union Act (FCUA) by unilaterally declaring that 1) all credit unions below $50 million in assets are a) "small" and b) "not complex"; and equally, 2) all credit unions above $50 million in assets are a) "large" and b) "complex".
Here are "the $$ numbers" which go with the charts in the 4/14/2014 charts…
The NCUA data which underlies the chart graphics is drawn from the ten year period covering 2001 to 2011.
During that period there were a total of 224 credit union failures, 199 or 89% of all failures were at credit unions of < $50 million in assets.
During that period total losses from failures were $890 million, with $225 million in losses for CUs below $50 million in assets, $175 million in losses for CUs up to $250 million in assets, $450 million in losses at CUs up to $350 million in assets, and only one $$$ loss of $40 million - 4% of total losses - occurred at CUs above $350 million in assets.
Broke the categories out a little differently than the chart to emphasize a couple of points that were asked. First, the $450 million in losses for CUs between $250/$350 million in assets does include the massive $170 million fraud loss which NCUA missed at St. Paul Croatian - it is highly unusual to take such a massive loss ($170 million on a $230 million CU!) on a larger CU.
Equally the single $40 million loss from CUs above $350 million in assets came from the failure of Eastern Financial a $1 billion + CU. The loss came from bad CDO investments (made through Wescorp!) all done with proper approval and agreement by the NCUA according to the NCUA OIG post mortem report. Losses at large CUs are generally "smaller" in relationship to the larger asset size of the CU.
The risk and complexity of a credit union is not determined by its asset size!
… it would appear that if NCUA wanted to truly reduce its losses it would spend more time - not less - working to help small credit unions -
instead of just "writing them off" !
6 comments:
You're leaving out the losses at the corporate credit unions, which are also covered by NCUA, but interestingly are not included in the risk based capital rule.
Its from NCUA's internal data and analysis.
I'm sure the omission of the billions of bucks in Corporate losses is entirely coincidental...
If one were to consider the income earned from the deposit to the NCUSIF owned by credit unions with assets over $400 million, it is suggested that the the loss of 40 million is pretty good return for an insurance fund.
If it were not for the excess earnings at this level, the losses at the lower end of the spectrum would not be covered.
Wonder what happens to the NCUA gravy train when complex credit unions decide to convert to a different insurance fund?
NCUA incessantly "bleeds" the NCUSIF of earnings to pay for an organizational structure and overhead costs which no longer make sense.
NCUA should feel some shame about the expense control advice they so routinely hand out in exam reports - especially to "smaller" CUs - but so visibly fail to follow in their own house…
Again, so you see why there is this desperate need to create the illusion of "high" risk in larger CUs, otherwise the Agency would have to exercise fiscal responsibility…
You - credit union/member - foot the bill… a "we're unaccountable tax".
Expect change? Don't hold your breath...
A Queen doesn't have to answer to anyone, quit whining and bow down
Maybe like the last Pope, she'll do us all a favor and leave early.
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