Three comments – all from credit unions – were filed on a proposal to redefine the phrase of “in danger of insolvency ” for purposes of an emergency merger, issued by the National Credit Union Administration (NCUA), with support for the proposition, but some based on certain conditions.
NCUA posted the three comments as the deadline for comments closed Sept. 29.
The agency in July had proposed to lengthen by six months the “forecast horizons,” or time periods, in which it projects a credit union’s net worth for determining if the credit union is in danger of insolvency or if it is critically undercapitalized. NCUA also proposed expanding the definition of “in danger of insolvency ” to add a fourth category providing that a credit union will satisfy the definition if the credit union has been granted or received assistance under Section 208 of the FCU Act in the 15 months prior to the NCUA regional office making such a determination. The agency based that suggestion on statistical data showing that about 92% of the credit unions that receive the assistance stopped filing call reports within 15 months.
John Fenton, CEO of Affinity FCU of Basking Ridge, N.J., wrote that even before applying the provisions as proposed, the agency should have exhausted every option for assisting a troubled credit union long before the application of the proposed definition became necessary.
“If after NCUA has exhausted every means to assist the troubled credit union the results do not improve, then Affinity agrees with the lengthening of the forecast horizon and the addition of the Section 208 assistance to the definition of ‘in danger of insolvency,’” he wrote.
“Mergers by their very nature are expensive and draining to the acquiring organization and are made even more costly when there is limited capital remaining or the membership base has departed,” Fenton added. “Thus if NCUA can identify and take action sooner to preserve the capital and membership base, the opportunity to find a merger partner for the troubled credit union should be made easier, preserving credit union membership for the members of the troubled credit union.”
Jon Hernandez CEO of CalCom FCU in South Gate, Calif., cautioned that adding the fourth category of credit unions receiving section 208 assistance may deter credit unions from seeking the assistance. “Further, we believe the approach should be understanding what the other 8% did differently and find ways to apply that to all credit unions applying for section 208 assistance,” Heranandez wrote.
Craig Atkinson CEO Houston Highway CU in Houston, Texas – after writing in support of NCUA’s proposals – asked “What other changes to the emergency mergers rule should the NCUA consider?”
The comments were received after a 60-day comment period.