GAO Recommends Earlier Actions by NCUA to Address Troubled Credit Unions
Jan. 4, 2012 -As directed by the National Credit Union Authority Clarification Act of 2011, the U.S. Government Accountability Office (GAO) released a report on Jan. 4 addressing credit union failures and NCUA's responses to those failures as well as implementation of Prompt Corrective Action (PCA).
The GAO found that poor investment and business strategies contributed to the corporate failures. Specifically, the failed corporates overconcentrated their investments in private-label, mortgage-backed securities (MBS) and invested substantially more in private-label MBS than corporates that did not fail.
NASCUS provided information to the GAO in an interview this past summer. NASCUS explained that a shift from meaningful dual chartering over time and a lack of diversity in oversight contributed to the corporate failures. However, we also explained that a number of corporates remained safe and sound throughout the crisis, so it is inaccurate to cite competition or a lack of oversight solely; management actions contributed significantly to the failures. In their report, GAO agreed that poor management was the primary reason for both the 85 natural person and five federal corporate credit union failures in the time period between Jan. 1, 2008 and June 30, 2011. Additionally, the GAO reported that examination and enforcement processes did not result in strong and timely actions to avert the failure of these institutions, a belief also shared by NASCUS in our discussions with GAO during the development of the report.
The GAO report makes two recommendations to the agency. NCUA should (1) provide its Office of Inspector General the necessary documentation to verify loss estimates and (2) consider additional triggers for PCA that would require early and forceful regulatory action and make recommendations to Congress on how to modify PCA, as appropriate. NCUA agreed with both recommendations, and reported that in regard to verifying loss estimates, KPMG LLP completed the 2010 audit of the Temporary Corporate Credit Union Stabilization Fund last week. Further, NCUA released the Stabilization Fund audit last week, as well. The GAO report was finalized before the audits were completed.
The GAO report can be found at this link.