NCUA six-month report shows 2 CU failures cost insurance fund estimated $6.7 million

The two insured-credit-union failures that occurred from April through September 2022 cost the credit union share insurance fund an estimated $6.7 million, according to the National Credit Union Administration’s (NCUA) Office of Inspector General’s (OIG) latest semiannual report to Congress.

The report shows that an OIG review of those failures uncovered no unusual circumstances that would warrant conducting a full-scale material loss review (MLR) as would otherwise be required by the Federal Credit Union Act.

The two failed credit unions are:

  • MSBA Employees Federal Credit Union: Liquidated in July, this failure cost the National Credit Union Share Insurance Fund (NCUSIF) an estimated $489,089, the report shows. it shows that MSBA entered into a merger with Consumers Federal Credit Union with cash assistance. MSBA’s net worth was critically undercapitalized with no reasonable expectation of solvency due to poor recordkeeping and poor asset  quality.
  • Paducah Teachers Federal Credit Union: Liquidated in September, this failure cost the fund an estimated $6.3 million, the agency OIG said. It said the credit union became insolvent with no prospect to restore solvency due to a high-risk loan portfolio, alleged fraudulent activity, financial insolvency, and insufficient operational staff. NCUA assisted with an emergency purchase and assumption, which was entered into with C-Plant Federal Credit Union.

The report notes that under the Federal Credit Union Act, the NCUA OIG must conduct an MLR of an insured credit union if the loss to the NCUSIF exceeds $25 million and an amount equal to 10% of the total assets of the credit union at the time the agency board initiated assistance or was appointed liquidating agent. If this threshold is exceeded, the OIG reviews the lost to: (1) determine the cause(s) of the credit union’s failure and the resulting loss to the NCUSIF and; (2) assess the NCUA’s supervision of the credit union. If the loss does not meet the threshold, the FCU Act requires the OIG to conduct a limited-scope review to determine whether unusual circumstances exist related to the loss that would warrant conducting a full-scope MLR. It found that none did.

NCUA OIG Semiannual Report to Congress (April-September 2022)