BROADVIEW, Ill. — Unhappy with NCUA's audits of the credit union and concerned over assessments, Access CU has dropped its federal deposit insurance and switched to American Share Insurance.
In December, members voted to approve the move to private deposit insurance and the CU converted Feb. 1.
CEO Brad Fish said uneasiness last year over future assessments for the Temporary Corporate Credit Union Stabilization Fund contributed to the move, but was not the primary reason. "When we began discussing the change last year the future of the corporate assessments was less clear than it is now."
NCUA recently stated that the corporate assessments could be over, due to net proceeds from the $1.4 billion JPMorgan Chase settlement and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Notes program.
But what pushed the $54 million Access to switch to private share insurance is the move now places the credit union exclusively under the supervision of the state credit union regulator, along with ASI. Fish said that while the CU is state charted and has an excellent relationship with the state regulator, NCUA in the past few years began stepping into audits.
"I remember one time having six auditors in my conference room from NCUA and the state regulator," said Fish. "It just became very clear NCUA was pushing us to do things we thought were not needed. They were always pushing us to make more money, do a bunch of things with ALM, for example. But look at our ALM numbers and we are fine. NCUA was in here three to four times a year — they were just all over us and we never understood why."
Fish said the CU closed one of its three branches last summer in an effort to meet what it felt the agency was asking for — more profits, money saved and better efficiencies.
"But that, apparently, was not enough," said Fish. "We are at about 12% net worth, our risk-based capital is 19% and our health is fine. We made a little bit of money in 2012 after assessments and lost $349,000 last year due to loans we had to write off. But our capital remains strong and this year we will make money."
A portion of the credit union's membership faced hard times last year after Interstate Brands, which makes Hostess products, closed two plants in the area. "Last year was a difficult year for many members," said Fish.
Fish explained that he had talked with state auditors about the credit union's own plans to make adjustments if capital ever fell below 10.5%. "The state was happy with that but NCUA was not."
Fish said the credit union also had issues with NCUA examiners, with the CEO sometimes questioning the examiner's expertise.
"We wanted to start purchasing more taxi medallion loans, which have proven to be very good assets for us and for a number of Chicago and New York City credit unions," explained Fish. "But a new, 25- to 30-year-old examiner told us the loans are too risky. I don't think any of the Chicago or New York credit unions doing these loans have lost much — or any — money on them. Plus, NCUA does not think these loans are risky for the credit unions that are writing them."
Fish did not rule out that NCUA was leading the credit union toward merger. "I know of other credit unions whose documents of resolution contained merger as a step. That's how hard NCUA can push."
NCUA Chairman Debbie Matz said that while the agency cannot comment on the specifics of any credit union's decision to convert to private deposit insurance, "As a regulator, I have found that credit unions that take this step often engage in regulatory arbitrage. Such financial institutions simply don't want to comply with the actions NCUA may require following an examination."
Matz pointed out that privately insured credit unions are not subject to "all the regulatory standards designed to protect credit union members and the overall financial system. As former Federal Reserve Board Chairman Alan Greenspan has testified before Congress, without the backing of the full faith and credit of the United States, private deposit insurers cannot manage systemic risk, as previous private share insurance crises in Rhode Island, Ohio and Maryland have repeatedly demonstrated.
Matz added that credit union members should be "fully informed that there are real differences between the protection afforded by NCUA's Share Insurance Fund and private deposit insurance."
The Dublin, Ohio-based ASI is the only surviving private insurer of credit union deposits. In 2013 ASI assessed its insured CUs a 7.5 basis point Special Premium. Including last year's assessment, since 2009 ASI has assessed its credit unions a total of 61.5 bps.
ASI president and CEO Dennis Adams stressed that the private insurance company is well regulated and sound.
"In the nine states we operate in, it is under the permission of the department of financial institutions, or whoever represents credit unions. In some cases it is dual regulation, like in Ohio, with their Department of Insurance. So we are heavily licensed and regulated and we are not here by accident," said Adams. "We have been here for 30 years, and we know what we are doing."
Adams said he is "amazed" that "anyone" would say ASI can't handle systemic risk.
"We went through the same (economic) cycle NCUA went through and our special premium assessment aggregated at 61.5 basis points while NCUA's (for the NCUSIF and Temporary Corporate Credit Union Stabilization Fund) comes to 83.32 BPs. We handled our systemic risk better than (NCUA) did and we did not go to any government agency for a bailout."
Adams also noted that ASI's equity ratio at the end of 2013 was 1.6% and the NCUSIF ratio stands near 1.30%.
