Earlier enforcement actions by federal administrators could have prevented the failure of five corporate credit unions, according to a new report by the Government Accountability Office. The congressional investigation unit launched an inquiry into the actions of the National Credit Union Administration during a period when most regulators focused their attention on the country's largest banks, mortgage lenders, and credit card issuers.
According to reports in the Credit Union Times and the Wall Street Journal, GAO researchers studied the failure of 5 corporate credit unions and 85 retail credit unions between January 2008 and June 2011. Small, community credit unions outsource many expensive operational services to corporate credit unions.
Investigators reported that NCUA failed to take prompt corrective action against member credit unions that showed signs of poor management during the 2008 financial crisis. Like other failed financial institutions, many of the failed credit unions suffered from overexposure to risky mortgage-backed securities.
Congressional team urges transparency over credit union bailout
GAO officials urged NCUA officials to quickly clarify the total amount of federal funds used to bail out other distressed credit unions during the survey period. Member credit unions have raised concerns that the reported range of $5 billion to $10 billion suggests that the NCUA lacks the technical expertise to adequately manage another financial crisis.
The GAO's report also recommended that the NCUA implement "additional triggers that would require early and forceful regulatory actions." NCUA board chairwoman Debbie Matz welcomed the GOA's findings, telling reporters that the recommendations echoed the agency's own plans to foster a "transparent and effective" regulatory culture.
Credit unions have regained popularity in recent months, buoyed by discontent with service fees at traditional retail banks. According to NCUA statistics, Navy Federal Credit Union, Pentagon Federal Credit Union and the North Carolina State Employees Credit Union manage assets comparable to the top 50 banks in the United States. Corporate credit unions and technology vendors enable even small credit unions to offer credit cards and online banking solutions that rival those from national banks.