ALEXANDRIA, Va. – The director of NCUA’s Office of Examination and Insurance has issued a response to some of the ongoing analyses by third parties regarding the agency’s handling of the failed corporates and the so-called legacy assets and their cost to credit unions.

Saying the agency has made “tremendous progress over the past five years,” Larry Fazio said in an op-ed released last week to Credit Union Journal that “it’s a good time to reflect on the road ahead, as well as on how far we’ve come.” That reflection follows numerous opinions in recent months from parties outside NCUA that have suggested NCUA did not need to conserve all of the corporates, but upon doing so overestimated the costs of the failed corporates’ investment portfolios and, in turn, overcharged natural-person credit unions via annual “assessments.” Those reports have appeared in a number of recent issues of Credit Union Journal, in addition to other outlets.

In response, Fazio said that beginning in 2008 NCUA had no choice but to act by conserving the five corporates – WesCorp, Southwest Corporate, Constitution Corporate, Members United, and U.S. Central – saying member withdrawals were creating “severe liquidity pressures” that meant the corporates could not “recover on their own.” Fazio reiterated that reviews by both the GAO and NCUA’s Office of Inspector General supported the decisions.

“If NCUA had let the failed corporates continue to operate, the consequences would have been untenable,” Fazio said. “If the full extent of the failed corporates’ losses had cascaded down to consumer credit unions, as many as 2,500 more credit unions would have failed…At the same time, NCUA would have been required to charge multiple premiums to restore the Share Insurance Fund to its minimum normal operating level...  The total cost to the system would have been in excess of $40 billion.”

In his statement, Fazio outlined the reasons for creation of the Corporate Stabilization Fund and the NCUA Guaranteed Notes (the lifespan of which extends through 2021), explaining that from 2009 through 2012, “short-term cash needs to satisfy maturing obligations of the corporates’ asset management estates drove annual assessments. Now the primary remaining obligation is repaying Treasury borrowings and interest.”

In setting the 2013 assessment of eight basis points, Fazio said NCUA considered numerous criteria before setting the lowest annual assessment in three years.

As for what Fazio called “the road ahead,” he said that “if loss projections continue to improve, the low end of the range may decline to the point where no future assessments would be needed – provided actual losses come out at the bottom of the range.” He noted there are caveats, however, including the need to repay NGN investors and the Treasury in whole or in part.

In addition, he responded to some critics of the agency’s modeling by stating the agency’s analysis is based on “independent modeling of cash flows that are updated regularly by the investment management firm BlackRock Solutions.”

For a complete copy of Fazio’s statement, go to and go to the Opinions & Analysis section halfway down the page.


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