WASHINGTON–A review of $1.5 billion in losses to the National Credit Union Share Insurance Fund from 2010-20 by the General Accounting Office has found opportunities for NCUA to “enhance its oversight.”
According to the GAO analysis, credit union failures generally declined from 2010 through 2020, as did losses to the NCUSIF.
“But losses spiked in 2018 largely due to failures of three credit unions with loans concentrated in taxi medallions with declining values,” GAO said. “The National Credit Union Administration (NCUA) Office of Inspector General, which conducts material loss reviews (MLR) of certain credit union failures, attributed credit union failures and NCUSIF losses to weaknesses at credit unions and NCUA's oversight.”
The Findings
GAO said it found NCUA has opportunities to improve its use of supervisory information to address deteriorating credit unions and its processes for reporting on failures, including:
- NCUA examiners rate credit unions according to five individual components: Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity/Asset-Liability Management (CAMEL), and assign a composite rating on their overall condition. NCUA places emphasis on the CAMEL composite ratings to guide its enforcement actions. “However, GAO found that when one of a credit union's component ratings is worse than its composite rating, that credit union is more likely to deteriorate or fail,” GAO said.
- NCUA's policies do not “explicitly address how to more fully leverage the component ratings individually to determine an appropriate enforcement action,” the GAO report states. “By more fully leveraging the additional predictive value of the CAMEL component ratings, NCUA could take earlier, targeted supervisory action to help address credit union risks and mitigate losses to the NCUSIF.”
- NCUA did not always conduct post mortem reviews (13 of 44 as of April 2021) of certain failed credit unions (to determine causes for failure) and did not complete most reports (30 of 44) in the required time frame. “NCUA's policies and procedures do not specify which office should ensure that reports are done and issued on time,” GAO said. “Documenting the responsible office would help ensure reviews are conducted and provide useful and timely information.”
About the Study
In all, GAO said it reviewed 145 credit union failures from 2010-20, resulting in more than $1.55 billion in losses to the NCUSIF (approximately half of that was represented by the failure of taxi medallion credit unions).