Matz: Tough NCUA Action Stemmed Cascade Of Big CU Failures

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WASHINGTON – NCUA Chairman Debbie Matz said yesterday painful moves by NCUA over the past two years – she called it “tough love” – including conservatorships and a large number of administrative actions, helped prevent the failures of several billion-dollar credit unions, which would have added to the industry’s costs to replenish the National CU Share Insurance Fund.

“Last year,” said Matz, “I told you it was necessary for NCUA to increase the number of administrative actions on credit unions that were taking excessive risks. I also said that these difficult economic times have required NCUA to provide tough love.”

Matz told more than 4,000 attendees to CUNA’s Government Affairs Conference that tough administrative action with several special supervisory credit unions that have more than $1 billion in assets helped revive those credit unions and saved them from what would have been disastrous failures. “I know you are all aware of the dangers we faced from corporate credit union failures,” said Matz. “But the untold story of the last 18 months is how we prevented another crisis. Several, billion-dollar consumer credit unions were on the verge of failing.”

Matz did not name those credit unions but among them are believed to have been California’s Kinecta FCU, Wescom Central CU and Arrowhead Central CU, Arizona FCU, and Florida’s Suncoast Schools FCU and Eastern Financial Florida CU.

“We knew we had to keep these CAMEL 4 credit unions from collapsing; and we knew that business as usual was not going to work,” said Matz. “We had to be creative. We had to tailor remedies to unique situations at each credit union. And we had to act quickly.”

She claimed that saving and/or merging those credit unions prevented additional losses of $1.5 billion to the NCUSIF.

“We used very prescriptive Letters of Understanding and Agreement to commit certain credit unions to specific performance targets with very close supervision. In some cases the boards of those credit unions had to be convinced to sign the LUAs or face losing their credit unions, which would have incurred significant losses to the Share Insurance Fund – and to you.”

“We found merger partners for credit unions that simply could not survive on their own. These mergers were not always well received by the boards of troubled credit unions, but failing to complete these mergers would have incurred significant losses to the Share Insurance Fund – and to you,” said the NCUA Chairman.

“We worked with several credit union boards to select new CEOs who had the skills and experience to address the specific problems that their credit unions faced. This definitely was not well received by boards. But failing to take action would have incurred significant losses to the Share Insurance Fund – and to you.”

“We conserved some credit unions – in order to stabilize them so they could ultimately be returned to their members,” she said. “I assure you this was not a popular course of action for NCUA. But again, failing to take action would have incurred significant losses to the Share Insurance Fund – and to you.”

“Because of the actions we took, worst-case scenarios remained just that – scenarios – and they did not become reality,” said Matz.

“One of the many lessons we learned from the economic downturn,” Matz said, “is that tough regulation is even more important during tough times. That’s because these are the times when, if we’re not careful, problems accelerate.”

 

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