WASHINGTON—The Financial Stability Oversight Council (FSOC) in its 2018 Annual Report stated that the credit union industry posted relatively strong performance
due to solid loan demand and a strengthening economy.
As CUToday.info reported earlier here, the same FSOC report again called on Congress to ensure NCUA and other agencies have adequate examination and enforcement powers over third parties, especially when it comes to cybersecurity.
In terms of CU performance, the FSOC noted the credit union industry performance has bifurcated, an issue on which CUToday.info has reported extensively. Larger credit unions have fared better than smaller credit unions across many performance measures, a trend in place for many years..
The FSOC analysis suggested credit unions continue to struggle with interest rate risk, stating “credit unions appear to be reaching for yield by lengthening the term of their investments in order to boost near-term earnings. However, these credit unions' financial performance could be adversely impacted, if short-term interest rates rise faster than expected. But it seems that this risk is retreating as markets are anticipating fewer rate hikes from the Federal Open Market Committee in 2019.”
‘Localized’ Issues
The report further noted that credit unions' exposure to localized economic distress can present unique challenges, as they are closely tied to specific geographic areas or business organizations.
The report observed “credit unions exposed to the taxicab industry, which has been disrupted by ridesharing companies, have undergone significant financial distress.”
On his blog, Keith Leggett, pointed out that as of Q2 2018, there were seven credit unions with $3.0 billion in taxi medallion loans either on their balance sheets or sold to other credit unions. Two of these credit unions with total assets more than $1.5 billion and specializing in taxi medallion loans were placed into conservatorship in the first half of 2017 and liquidated in the third quarter of 2018.
As CUToday.info reported earlier, NCUA recently announced the insurance fund has taken an approximate $750 million hit in 2018, nearly all of that from failed taxi medallion-lending CUs.