WASHINGTON — Is it possible NCUA's actions related to corporates, including its new corporate rule, have actually caused more harm than good? One influential analyst thinks so and believes the time has come for the agency to face some reform of its own.
"I believe the facts clearly show that NCUA's actions destroyed cooperative value, undercut future safety and soundness and demonstrated an inherent structural flaw that must be addressed," Chip Filson, chairman of Callahan & Associates, has written in a new analysis of recent events. "Redesigning is what credit unions do best. That is why cooperatives were formed. And our highest priority now must be redesigning our regulatory system."
In a new study titled "Corporate Crisis and Regulatory Reform," Callahan & Associates says the agency's corporate system resolution actually created a second corporate crisis that will more than triple the audited system liability figure that was released just 60 days prior to the issuance of the corporate rule.
"Until NCUA's nationalization of the corporate system on Sept. 24, 2010, the corporate network was having one of the most successful years in its history," Filson said. "Even WesCorp, which was reporting a negative net worth of 24%, was having a record earnings year. It is clear that their accounting presentation and economic value were widely divergent."
Callahan's said the study shows that a variety of indicators were improving, including:
• Core earnings for the first six months were more than $158 million or 38 BPs of average assets.
• Total system equity had improved by more than $9 billion in the 12 months ending July 2010.
• Corporates were performing all of their settlements normally and had in place more than $62 billion in advised lines of credit.
Callahan's said these improvements reflected both external market "normalization," as well as the efforts by individual corporates to prepare themselves for the future.
And though there has been a lot of focus on the almost $12 billion of OTTI expense recorded by the corporates, those losses still haven't been fully realized, the study notes. Indeed, only $1.154 million had actually been incurred at the time the agency issued its revised corporate rule, meaning that more than $11.8 billion-greater than 90%-was still in reserve and unused when the NCUA took action.
Calling NCUA's conservatorships and corporate rule "the nationalization of the corporates," Callahan's alleged the agency's action has not only trebled the cost to the credit union system, it has destroyed the industry's access to CU-based liquidity, forcing credit unions to turn to non-credit union options.
Filson said the report "presents my belief that we have come to an impasse with the NCUA and with those who think our system is simply a 'bank-lite' version of financial services. I make no secret how I feel about those who would sacrifice our system for quick fixes or political convenience instead of nurturing our collective capabilities to respond to everyday needs of our members."
