NCUA makes Share Insurance Fund safest in the world!

by. Henry Meier

As readers of this blog will know, there are days when the amount of news is so great that I do away with my normal commentary to highlight the latest developments.  This is one of those days.

Most importantly, NCUA announced late last evening that it would modify its Risk Based Capital proposal to both accommodate credit union concerns for greater flexibility and NCUA concerns about protecting the all important Share Insurance Fund.  NCUA has decided to scrap its proposed placement of credit union assets into ten risk-rated categories.  Instead, all assets held by credit unions will be given asset ratings of 1250%.  This means that all credit unions will have to back up all their loans with 100% collateral.

For example, if you want to make a $100,000 member business loan, the member will have to provide you with collateral equal to 100% of the loan. Chairman Matz pointed out that the new system will make the SIF the safest of all bank insurance systems in the world.  In addition, whereas the initial proposal effectively penalized credit unions for holding concentrations of residential mortgages and investing in CUSOs, the new system doesn’t discriminate against any type of lending activity.  When asked how credit unions could survive under this new regime, Matz responded that “the key is going to be volume, lots and lots of volume.”

“Besides,” she explained, “NCUA’s ultimate responsibility is to protect the Share Insurance Fund, not credit unions.”

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