Report Criticizes Handling of Credit Unions' Failures

From the Wall Street Journal - January 5, 2012

A government report on Wednesday criticized how a federal regulator handled the failure of five corporate credit unions and urged faster action to identify and prevent future problems.

The rebuke from the Government Accountability Office, the investigative arm of Congress, highlights the distrust between the regulator—the National Credit Union Administration—and many of its members, who say they worry the final cleanup tally will be higher than they have been led to believe.

The GAO said a lack of documentation opened the regulator to "questions about its ability to effectively estimate the total costs of the failures and determine whether the credit unions will be able to pay for these losses."

The GAO study underscores concerns some credit unions have voiced about their regulator. Although recent regulator estimates for the cost of the bailout are lower than previous estimates, the range of $5.2 billion to $9.5 billion is still wide enough to cause some observers to question their validity.

Because the estimates have changed from year to year and not much insight has been provided into the performance of the troubled assets, said Charles Jones, a finance professor at Columbia University, "credit unions are operating a little bit in the dark."

Concerned that the regulator has been slow to release crucial information that would help them tally losses on mortgage-backed securities that caused the corporate failures, credit unions have, in public commentary and letters to Congress, demanded better oversight. They say higher loss rates will come out of members' pockets in the form of lower interest on deposits and higher loan rates.