ALEXANDRIA, Va. – Already buffeted by the worst credit union crisis in decades, NCUA approved a new multi-million dollar program yesterday that will add 55 examiners and ensure that every credit union gets an on-site review annually.
Creation of the new program comes as a record 1,667 credit unions, more than 20% of the total, reported a loss through the first three quarters, with credit union failures and assisted mergers pushing the $8 billion National CU Share Insurance Fund into the red for the first time since the banking crisis of the early 1990's.
"All economic indicators seem to tell us that 2009 may be more difficult than 2008, and I believe NCUA should be able to find these problems more rapidly than we can now," said NCUA Chairman Michael Fryzel, before voting to approve the exam program.
The new program will add 50 regional examiners and five supervisory examiners and will shorten the exam cycle for the typical credit union to 12 months, from as long as 18 months now. It was also allow NCUA to go into troubled state chartered credit unions, normally the purview of state supervisors, with the coordination of state regulators.
"Of paramount importance is the goal of NCUA to address important emerging problems," said Len Skiles, executive director of NCUA, who referred to growing numbers of troubled credit unions. "This will require NCUA to be proactive, rather than reactive."
The new exam program, which will cost an estimated $6.8 million over the next two years, will help push NCUA spending up more than 12% next year, to $177.9 million. The spending plan also includes average 6.3% raises for all NCUA employees.
As a result, the average federally chartered credit union will see a 7% increase in the annual operating fee paid to NCUA.
The growing number of credit unions with negative earnings will show on the third quarter financial data expected to be released by NCUA next week, when NCUA will disclose more details in one of the worst quarters for credit unions. Dozens of the largest credit unions have already reported growing losses, some in the tens of millions of dollars.
The 1,667 losing credit unions this year compares to about 1,100 through the first three quarters last year, and about 900 for a typical year, and that’s even with the rapidly falling number of total credit unions in the country.
Several large credit union failures last year and this year have cost the share insurance fund more than $450 million in losses so far, while several large credit unions are being monitored closely for their financial condition, according to NCUA. NCUA recorded a $21.6 million loss on the fund last month, pushing it into the red to the tune of $200,000 for the first 10 months of the year. That means another large failure could deplete the fund’s reserves enough to force NCUA to charge credit unions a premium next year in order to replenish them.
Skiles, who helped resolve thousands of credit union failures in the late 1980's and early 1990's for NCUA, emphasized the need to stay ahead of potential problems in stressing the need for the new examiners. "We can’t afford to roll the dice and not be able to deal with contingent economic stress," he said.
