NCUA Reports Spike in Troubled CUs

by Mercator Advisory Group 0

Stresses and strains in the credit union industry continue to be a cause of concern to regulators and managers, but the data in this article does not quite agree with the headline.

Regulatory risk monitoring of credit unions is based on the so-called CAMEL score, a calculated aggregation of risk exposure reflecting “Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity.” The National Credit Union Administration (NCUA) reported at its mid-January meeting that 368 credit unions were rated CAMEL four and five (the weakest ratings) at the end of December 2010, compared with 351 at the end of December 2009. However, the article also reports that the December count was actually a decline from the preceding month November 2010, when 372 had been so classified.

The headline writer isn’t all wrong, however. There was a spike, but it was in the dollar cost of the 2010 failures:

“There were 28 credit union failures in 2010, the same number as in 2009. However, NCUA Chief Financial Officer Mary Ann Woodson told the NCUA board that the 2010 failures cost the NCUSIF $220 million, compared with $124 million in 2009,” according to Claude R. Marx, writing in the Credit Union Times.

For 2011, the NCUA plans to focus heavily on reducing risk in both federal and corporate credit unions. New inspection schedules and reporting standards are probable.