Thursday, November 18, 2010 12:00:47 PM
ALEXANDRIA, Va. - "Taking a page" from the FDIC's recent action plan to increase available tools to resolve large, complex financial institutions, NCUA Wednesday announced its own Loss Share Program.
NCUA said it would begin immediately developing the pilot program, and that it anticipates that losses to the National Credit Union Share Insurance Fund (NCUSIF) will be reduced through a program that, like the FDIC's, gives agency support to an acquiring institution's purchase and service of pools of loans. The FDIC reimburses the acquiring financial institution a percentage of any loan losses.
"This pilot represents an innovative and sensible effort by NCUA to minimize losses to the NCUSIF and foster a lower-cost, market-based solution to the problems associated with failures," noted NCUA Chairman Debbie Matz in a release.
"By drawing on the experiences of FDIC, and tailoring the program to the unique nature of credit unions and the distinct structure of the NCUSIF, I am confident that the pilot program will be a worthwhile initiative. I look forward to carefully evaluating the results," Matz added.
The agency said loss share agreements could potentially defer NCUSIF losses or even reduce losses if loan value increases. "The FDIC experience has also shown that loss sharing can add clarity about risk in an acquiring institution's loan portfolio," the release said.
As part of the NCUA pilot, the agency will gauge the cost benefits of overseeing loss-share agreements that have eight- to 10-year time horizons.