New Callahan Report Study Analyzes NCUA’s Corporate Actions and Recommends Reform to Achieve Regulatory Accountability
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Washington, D.C. (January 11, 2011) – A new 52-page study by Callahan and Associates – Corporate Crisis and Regulatory Reform – shows how NCUA’s September 2010 Plan (Corporate System Resolution) created a second corporate crisis that will more than triple the audited system liability released just 60 days prior.
“Until NCUA’s nationalization of the corporate system on September 24, 2010, the corporate network was having one of the most successful years in its history,” said Chip Filson, Chairman of Callahan and Associates and the Report’s primary author. Detailed tables show that core earnings for the first six months were more than $158 million or 38 basis points of average assets. Total system equity had improved by more than $9 billion in the 12 months ending July 2010. Corporates were performing all of their settlements normally and had in place more than $62 billion in advised lines of credit.
“Even WesCorp, which was reporting a negative net worth of 24 percent, was having a record earnings year. It is clear that their accounting presentation and economic value were widely divergent,” said Filson.
The Callahan study noted that improvement in the $98 billion corporate system reflects both external market “normalization” plus continuing efforts by individual corporates to position their operations for the future.
One important finding: With all the attention on the nearly $12 billion of OTTI expense recorded by all the corporates, only $1.154 million in losses had actually been incurred. More than $11.8 billion, or greater than 90 percent, was still in reserve and unused when NCUA took over the corporate system.
The Report contains six analytical articles, with the first describing the critical counter-cyclical role credit unions performed during the Great Recession of 2008-09. Credit unions originated more than $525 billion to 39 million-plus members, a record amount for any two-year period.
Additional articles show how NCUA’s nationalization of the corporates resulted in a tripling of the costs to be paid by the credit union system – from the audited liability of $ 6.4 billion released on July 21, 2010, to more than $20 billion in NCUA’s 10-year plan.
The selloff of the corporate network’s highest-yielding assets to Wall Street will cost credit unions billions in lost revenue, according to the Report. This also will reduce margins due to the higher costs incurred from paying outside investors to hold investments the system already funded with its own resources, as noted in the report’s analysis.
Beyond the tripling of costs, the most critical result of the NCUA’s actions is that the credit unions’ proven system of intra-industry liquidity has been destroyed. Credit unions are now depending on the same institutions as the rest of the financial sector – the very firms that had to pull back during the financial crisis.
The study’s primary recommendation is that a charter reform movement be undertaken focusing on two key points: credit unions’ unique role in the economy and the need to redesign the regulatory system to provide for accountable governance in the regulatory structure.
Copies of the report are available for $29. They are also included with a one-year subscription to the Callahan Report. Call 800.446.7453 to request a copy.
About Callahan & Associates
Callahan & Associates, based in Washington, D.C., has been serving the credit union community for more than 25 years. The firm specializes in financial publications, technology-driven credit union information, strategic planning, and investment management. Through its portal, www.creditunions.com, Callahan & Associates offers a full suite of products designed to enhance the performance of credit unions and suppliers, including financial analysis software, research, webinars and expert commentary. To learn more, visit www.Callahan.com.
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