Jan. 5, 2015

More On:

Corporates NCUA


  • Assuming around the same level of earnings as Catalyst has experienced since the conservatorship, it appears by the numbers in the article that Southwest Corporate could have just as much capital in it today as Catalyst maintains. Credit unions would never have needed to capitalize Catalyst ($90 million initially as I recall). NCUA confiscated the remaining capital of Southwest Corporate, forcing member credit unions to absorb the losses and to capitalize a replacement corporate, all on weak projections, not actual losses. I am sure NCUA has charged all kinds of expenses to the corporate fund which could have been avoided as well, at least in the case of Southwest. Doesn't seem that Southwest was quite as "insolvent" or "failed" as the agency likes to repeatedly assert.
    Concerned SWC Member
  • So Mr. Filson, using your scenario, if a credit union has foreclosed on a real estate owner in a down market where property values were below the loan balance, does the credit union need to refund the former real estate owner it's money plus any gain when the market values recover and the credit union books a gain at sale? It was the homeowner's investment and the lender now has a sweet deal. All valuations are at a point in time and are generally very poor at predicting future systemic crashes or recoveries.
  • The NCUA "foreclosed" on these corporates because they projected, using models, that at some point in the future these securities would default causing losses. In your analogy, this would be similar to a cu foreclosing on a borrower who is completely current in payments just because of a fluctuation in the value of the underlying collateral. Instead of recognizing losses when delinquency or defaults occured, NCUA modeled projected defaults over the entire lives of the securities and required reserves for this projection now. Not only were these loss projections in error by at least 50%, using NCUA's own numbers, each of the corporates had fully reserved for these incorrect estimates and in three of the cases still reported positive net worth after this over-reserving. Apart from the modeling errors causing incorrect financial projections that resulted in very poor and costly supervisory decisions, the precedent of projecting future scenarios onto current balance sheets is a lesson yet to be learned as NCUA enforces its stress test assumptions on larger credit unions and the Individual Minimum Capital Requirements on all others.
    Chip Filson
  • The article refers to "OCCI" ("reserves" & "provision") at least twice. Can someone tell me what "OCCI" is referring to?
    Mark Kaufmann
  • Editor's Note: The OCCI abbreviation was a typo; it should read OTTI for "other than temporary impairment." I have corrected the abbreviation in the text.
    Rebecca Wessler
  • The sad truth is that any credit union and/or CEO that bucks NCUA will be punished or run out of business. The declining number of credit unions speaks for itself. They don't have to be right - they are in charge and will make sure everyone knows it.
    S. W. Fontenot