NCUA Pilots Loss Sharing Deals On CU Failures
ALEXANDRIA, Va. – The NCUA Board, facing growing losses from failed credit unions, agreed yesterday to launch a pilot program aimed at inducing healthy credit unions to acquire sick institutions by sharing future losses on the sick credit unions with the acquirers.
Under the pilot, an acquiring credit union will be allowed to purchase and service pools of loans, and NCUA will reimburse the acquirer a percentage of any loan losses.
“This pilot represents an innovative and sensible effort by NCUA to minimize losses to the NCUSIF and foster a lower-cost, market-based solution to the problems associated with failures,” said NCUA Chairman Debbie Matz in a prepared statement.
The NCUA pilot is modeled after a program tried by the FDIC to limit losses on
the growing number of bank failures.
Loss share agreements could potentially defer NCUSIF losses or even reduce losses if loan value increases. FDIC experience has also shown that loss sharing can add clarity about risk in an acquiring institution‘s loan portfolio. As part of its pilot NCUA will evaluate the cost benefits of overseeing loss share agreements that have 8 to 10 year time horizons.