CHARLOTTESVILLE, Va.-An analysis released last week suggests an NCUA proposal may stymie the increasing popularity of loan participations among credit unions and may even increase risk.

The analysis, performed by SNL Financial, found that credit union loan participations have risen sharply since Q1 of 2011, after having been flat for the two years prior to that.

However, said SNL, NCUA's December 2011 proposal expanding loan participation requirements to state-chartered, federally insured CUs, as well as limiting participation loans from any single originator to 25% of a CU's net worth will actually increase risk by forcing credit unions "to make new relationships in favor of trusted older ones," SNL Financial suggested.

At the time NCUA made its proposal it said the move is aimed at reducing risk to the insurance fund due to "interconnected parties' shared risk."

Both CUNA and NAFCU have also raised similar concerns with the agency and urged it to reconsider. NCUA has not given any indication if it plans to change the rule.

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