The images of flooding, devastated landscapes, and people who have lost everything from hurricanes Harvey, Irma, and Maria fill the airwaves.
Loss of life and property damage in the billions continue to mount. One credit union economist has stated that Harvey’s destruction in Texas (before Irma) could cause losses to the NCUA.
As if the regulator needs encouragement to overestimate risk as it makes plans for the billions it wants to hang on to from the corporate credit union bailout rather than return to the credit unions who have funded this bureaucratic largesse.
Also from Chip Filson: "Don’t Let The NCUA Take Your Members’ Millions (Again)" and "Credit Unions Rally To The NCUA’s Side: Will This Prove A Good Decision?"
There is an unfortunate human tendency to believe dystopian forecasts: “Negativity makes one sound like an expert,” as the saying goes.
This approach was used by NCUA staff during the financial crisis and Great Recession. In a Sept. 22, 2009, memo to the NCUA board based on a stress test from the Treasury’s Supervisory Capital Assessment Program the following was reported: The baseline analysis produced an allocation of $32.6 billion in losses resulting in 38 failures with a maximum exposure to the NCUSIF of $577 million. The “more adverse” scenario projected 519 credit union failures and a maximum NCUSIF exposure of $15.5 billion.
Neither happened. Not the baseline, much less the worse scenario. Such apocalyptic projections can compromise people’s sense of responsibility and accountability for creative problem solving. Instead the solution becomes just finding enough money.
I know. Because, in this 2005 article, I made just such an error when analyzing the impact of Hurricane Katrina on credit unions and the NCUSIF in 2005.
The Katrina Losses That Didn’t Happen
Katrina’s flooding was so devastating that two weeks after the storm moved on, NCUA listed on its website 69 credit unions in and around New Orleans with assets of $284 million that were nonoperational and/or unable to be contacted. Hundreds of thousands of people were evacuated, many never to return. Homes and autos were destroyed; there were only uncertainties about when and if there would be a future for the Crescent City.
There were 54 more credit unions in Orleans Parish with assets of $1.1 billion that were partially operational. The NCUA identified a further group of credit unions with hurricane damage, raising the total exposure to more than $3.4 billion.
Using the NCUA lists and the June 30, 2005 call report data, it was easy to calculate the probable insolvencies. One had only to compare the savings balances less recoverable assets (investments) and assume all secured loans (mortgages and autos) and even unsecured lines of credit would be totally lost. I estimated a $100 million shortfall (loss) on the 54 credit unions in New Orleans to as much as $500 million when adding the parish credit unions.
The article made specific industry suggestions such as a “recovery czar” to coordinate relief and a special CLF loan program to minimize potential losses. My September 2005 article also projected the possibility of a premium if the higher-end credit union insolvencies occurred.