ALEXANDRIA, Va. – NCUA Board members conceded yesterday the $1.1 billion premium they assessed will probably be supplemented with additional charges next year and in 2011 as problems continue to grow among natural person credit unions.
"We've had a rough year in the current year, but our anticipation is we're going to have even more losses going into next year," said new NCUA Chairman Deborah Matz. "But we're particularly concerned because we have a large number of large credit unions on the troubled list."
Growing losses among credit unions, both natural person and corporates, have erased 3%, or $2.6 billion, of credit union capital between June 30, 2008 and June 30, 2009, with write-downs of capital investments in corporate credit unions accounting for most of the losses, according to NCUA. That has pushed the industry’s average capital ratio down from 11.2% to 10%.
Melinda Love, NCUA's chief examiner, projected more assessments ahead next year. "It's likely 2010 and 2011 we may do one or more (corporate) assessments," said Love. "It's likely there will be an additional NCUSIF premium in 2010 and 2011."
The report on this year’s premium assessment sounded an ominous warning.
"All indicators point to a rising number of credit union failures through 2010," it said. "Increased levels of failures at some point are expected to result in increased levels of NCUSIF losses due the reduction in the number of healthy combination partners able to absorb failed credit union assets and liabilities."
"Lower demand for mergers and acquisitions will likely lead to higher resolution costs and an increased number of liquidations, which require the NCUSIF to maintain higher levels of liquidity."
The report said that continued stress in the residential mortgage market and its impact on both natural person and corporate credit unions could cause "a material increase in the number of credit unions with inadequate levels of capital and subject to Prompt Corrective Action."
"Further increases in the number of troubled credit unions will result in stress to NCUA in resolving problems cases as resources will be strained both in terms of Agency manpower to properly supervise the credit unions and a probable reduction in the number of institutions willing and able to absorb the related assets and liabilities."
The report made several recommendations to plan for future losses.
It suggested conducting an exercise to determine if the largest natural person credit unions have sufficient capital to withstand the impact of a worsening economy, similar to the Supervisory Capital Assessment Program conducted by the FDIC.
It recommended increasing NCUA staff, including problem resolution staff.
Also enhancing evaluation of natural person credit unions with concentrations of real estate loans in hard-hit states, such as the "Sand States" of California, Nevada, Utah and Florida.
Additional evaluation of corporate credit union investments was also recommended.
