GAO Releases Study on Corporate and Consumer CU Failures and NCUA’s Effectiveness; Gentile Urges CUs to Read Report

Posted by Marissa Anema Thursday, January 05, 2012 10:41:00 AM

WASHINGTON – The Government Accountability Office (GAO) yesterday issued a report on NCUA’s oversight of corporate and natural person credit unions that, among other things, calls on the agency to provide more information and transparency regarding its estimates of the losses for failed corporate credit unions.

Required by the National Credit Union Authority Clarification Act of 2011, the report examined the NCUA's handling of five corporate credit unions that failed and the agency's efforts to stabilize the corporate credit union system.

The report also reviewed the agency's supervision of the 85 natural person credit unions that failed during the 30 month period under review, January 1, 2008 to June 30, 2011. Those 85 represented less than 1% of total credit union assets.

The report, which relied in part on NCUA examination reports and reports from NCUA's Office of Inspector General (OIG), cited poor management as the "primary reason" that the natural person credit unions failed. GAO also faulted NCUA's supervision of troubled credit unions, noting that the agency in some cases responded too late.

It also said that while there were some favorable outcomes associated with its PCA implementation, there were also inconsistencies in the "presence and timeliness of PCA and other enforcement actions."

Specifically, the GAO report has two recommendations for NCUA: provide the agency’s Inspector General the necessary documentation to verify loss estimates for the Corporate Stabilization Fund and consider additional triggers for PCA that would require early and forceful regulatory action and offer proposals to Congress on how to modify PCA, as appropriate.

“We welcomed the GAO review, and NCUA fully agrees with the recommendations contained in the GAO report,” said NCUA Board Chairman Debbie Matz in a press release yesterday. “In fact, we were already working to implement these recommendations. With completion of the 2010 Corporate Stabilization Fund audit last week, NCUA has complied with the first GAO recommendation and will continue to regularly update cost estimates in the future. To fulfill GAO’s second recommendation, we will continue to implement strategies to improve NCUA’s early detection methods and strengthen enforcement actions where necessary.”

"I urge all credit unions to go through this report. It is the most comprehensive, detailed recap to date of the disruption in the corporate network. It highlights what led to the problem and how NCUA responded, but one of the most disturbing items is GAO's concern over how NCUA has not provided enough information for how it is valuing the corporate losses. That is something we should all be concerned about," said Gentile, who will recap the report in his weekly column.

Click here to read GAO’s summary and full report. Click here for NCUA’s press release.


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