Can the Credit Union Industry Survive -- Its Regulator?

rcwhalen's picture

It is axiomatic that regulators never act before a crisis.  But the public still does not understand the degree to which regulators encourage acts of willful idiocy for political purposes.  Witness the recent track record for The National Credit Union Administration, the supposed regulator of the credit union industry, which has become an engine of systemic risk in this small but significant credit sector. 


The credit union industry is a bit over $1 trillion in assets, mostly in very small institutions around the country.  The NCUA has a federally insured insurance fund.  The skew towards very small institutions in the world of credit unions is even more severe than among banks, where 6 out of every seven depositories is a community bank.


The NCUA took an especially severe kicking in the subprime mess, with several corporate credit unions gutted by losses on subprime securities.  A tab measured in the tens of billions of dollars still awaiting a final resolution.  See my comment in American Banker, “Say No to More Lending Power for Credit Unions,” describing how the largest corporate credit unions dug an amazing financial hole by speculating on subprime debt – with the full knowledge of the NCUA and other federal regulators.


This fiscal black hole created by the NCUA is guaranteed by US taxpayers and now threatens the existence of little credit unions around the nation.   My esteemed friend and business partner Dennis Santiago, CEO of Institutional Risk Analytics, recently published ratings for credit unions as part of The IRA Bank Monitor.  For example, let’s look at the Doe Run credit union in Brandenberg, KY.  


The Doe Run depository is rated “Good” by IRA, but is also quite fragile in terms of its ability to absorb loan losses.  The $8.8 million asset depository had 20% of its assets and most of its liquid reserves invested in corporate credit unions at the end of 2011, of note.  In good quarters, this little credit union in KY does about 0.4% ROA.    


In 2011, assessments for the NCUA corporate credit union “stabilization” fund were consuming more than $6,000 out of the Doe Run credit union’s $20,000 or so in income for the year.  Retail credit unions like Doe Run are captive of the badly run corporate credit union vehicles, which are mismanaged under the watchful eye of the NCUA.   


The NCUA still cannot or will not tell its member institutions the true scale of the losses due to mismanagement at corporate credit unions.  Suffice to say that the corporate credit unions bought some particularly nasty toxic waste from the subprime zombie swamp.  This crisis affecting credit unions is one of the least recognized and reported aspects of the financial crisis.  Assessments needed to repay the Treasury could cripple the capital generation of credit unions for years.


Keep in mind that the NCUA has been audited repeatedly by the GAO and internal auditors over the past decade and found severely deficient in terms of internal systems and controls.  Nobody really, even today, knows the full extent of the losses in the NCUA.  But this is also why the back-door effort by the NCUA to allow business lending by credit unions is especially ill advised.  

The NCUA has allowed credit unions to make loans to small businesses under several loopholes known as member business loans or “MBL,” this in an effort to increase income in the industry.  Why?  Income is needed to fill the yawning deficit in the NCUA insurance fund due to the financial speculation by the now defunct corporate credit unions and several others on life support.  


Allowing expanded MBL lending is essentially a strategy to “double down” on the risk taken by credit unions, institutions which lack the people and the systems to effectively monitor small business credit.  Loan losses at credit unions will likely increase as a result, putting increased stress on these lightly capitalized banks.  Jeff Gerhart, chairman of the Independent Community Bankers of America, put it simply:


“The MBL cap was not set arbitrarily. Its purpose, as described by the Senate Banking Committee, is ‘to ensure that credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumers, especially persons of modest means, through an emphasis on consumer rather than business loans.’  With the NCUA’s sweeping expansion of MBL authority, which is sure to harm community banks and significantly increase risk to the National Credit Union Share Insurance Fund, why is MBL legislation needed at all?”


The push to give business lending authority to credit unions is a red flag.  Let’s recall that most regional and community banks are not equipped to deal with significant business lending exposures.  Banks have larger profits to support such activities than do credit unions, yet most banks stay away from business lending.  


All but the largest credit unions are simply too small to justify the people and resources needed to underwrite and service small business loans in a safe and sound manner.  Small business loans are often too small to be profitable.  Keep in mind too that most banks are already fleeing small business lending, so the idea of credit unions jumping into the gap and actually making money is truly madness.  


But if you are a regulator like the NCUA facing a financial black hole in your insurance fund and members of Congress anxious to promote growth, what do you do?  You double down on the bad bet and allow credit unions to expand small business risk exposures.  This is easy to sell up on Capitol Hill under the rubric of “job creation,” but the effect on the credit union industry and the economy will likely be negative when the full cost is totaled.  The real question, though, is whether the credit union industry can survive the continued operational chaos inside the NCUA.



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disabledvet's picture

"must...blow...up...all...banks. must...blow...up...all...banks."

silverserfer's picture

I get paid 5% interest on my checking account at my local CU. NO fees in the entire 12 yrs I ve banked there. They make their $ on my auto loan. theyre like a bank thats been de-clawed and had its nuts cut off. They would screw me over  if they could but they just sit there and bark. if not for those nasty regulations im sure they would love to scrjew me out of my money. 

Toolshed's picture

I have one thing to say about you collecting 5% on a checking account at a credit union - BULLSHIT.

HardAssets's picture

Yes, it can't be that they want to be competitive and keep you as a happy long term customer - - unlike insider connected big corporations who pay off politicians to gain advantage.

steve from virginia's picture


First of all, it's nice to see a factual article from Chris Whalen that leaves out the Ayn Rand prosyletizing/pimps and whores of big business/USA Nazi douchebaggery.


Keep in mind that the NCUA has been audited repeatedly by the GAO and internal auditors over the past decade and found severely deficient in terms of internal systems and controls. Nobody really, even today, knows the full extent of the losses in the NCUA.


Shades of Fannie and Freddie. Nobody knew the extent of their profits (losses) when loans were increasing: from Y2K - 2004 when rates were very low. As it turned out the agencies were deeply underwater: found out too late to avoid the bailout and receivership. 


Nobody learns anything because the sky is always blue tomorrow ... right?

SafelyGraze's picture

I would like to open an account.

Can someone recommend a good place to deposit my funds and take out a loan.

Thanks in advance.

HardAssets's picture

Lets see, would big  money center banks who are bankrupt and stole taxpayers funds to prop themselves up (using politicians and their cronys in govt - including various Treas Secretarys) - - possibly want to squash their competition in small local banks and credit unions using regulation ? (A very old game for big insider corporations)  Is this a possibility ?

Find a good sound small bank or credit union (or two or three) for keeping the paper fiat you need to get by day-to-day. The whole freakin' fiat b.s. fractional reserve 'money' system is a fraud.

zot23's picture

Does anyone know of good (and free) online resources for exploring credit union ratings?



HardAssets's picture

For credit union and bank ratings see:

You can get 'star ratings' for free. If you want detailed reports they have those for a fee. Its all explained on the website.

I'm not associated with them, but have used them in the past as a customer.

They'd like you to order their detailed reports, of course. Nothing is free in life. But its not necessary to find good financial institutions. Just stick to four and five star rated ones.

PatientZero's picture

Fuck yeah! My Credit Union has a five-star rating. You jelly?

Revert_Back_to_1792_Act's picture

You might want to take a look at that 'under penalties of perjury' thing you signed when you applied for an account.

What exactly does that US Person and Resident Alien stuff mean?



CrazyCooter's picture

The only site I know is ....

... but I am not sure if they do credit unions or not.

Also, you only get so many free page views before they want a subscription. I think they do it by IP, so you can do it from home and work and get double the traffic.



Shizzmoney's picture

The #moveyourmoney campaign was awesome, especially so for Credit Unions. 

I know I had a good LOL when I told the Bank of America Bank manager the reason why I was withdrawing my funds was not just because of the proposed fee at the time ("don't read the news", he tells me), but because I showed him the article from ZH on my smartphone that showed when BOA attached depositors' money to the Fed Reserve balance sheet (and the CDOs they are exposed to).

It's a good thing I don't "read the news".  I read ZH.

Heyoka Bianco's picture

If you really read ZH, how can you believe a credit union offers any real protection? Do you really think when the gov't needs to hoover up more assets from the proles, they're going to say 'Oh, blast! The credit unions! We dare not loot them!'?

Take some money out of your CU, go to a sporting goods store, and buy a mitt so you can catch a clue.

HardAssets's picture

And where do you think you should keep your paper fiat ?  In an FDIC 'protected' big bank ?In a mattress ? 

Ultimately, there is no 'real protection' in this life.  You check out the game, place your bet, and take your chances.

Shizzmoney's picture

I actually don't have any money in a CU....although I do think that they, at this time, Credit Unions offer a better deal to a customer, and safer security, than a medium sized-to-big bank who has potential liabilities that effect depositors' money, that may not be on their balance sheet. 

Granted, a ROI o na CD may not be as potentially great as with a traditional bank, but if SHTF, I at least have at least a LITTLE more comfort that the bank isn't going to take my capital and place a CDO bet on European sovereign debt.

And, for your information, sir: as a reader of ZH I personally endorse and have my capital in my *own* Bank, the safest in the World:

The Bank of My Sealy Posturepedic

Allen S's picture

This caused me to look over my credit union's last annual report:


They seem to be doing well. No subprime exposure, well capitalized, .34% non-performing loans (seems good?)


From some comments in the report it seems the natural-person credit unions have been bailing out the corporate credit unions.




Cthonic's picture

The "natural-person" credit unions are clients of the corporate credit unions.  And they all pay into the NCUSIF. Thus the risk is indirect and doesn't show up in the annual report.

AldousHuxley's picture

penfed has the best credit card reward program available


  • Earn 5 points per dollar spent on gas purchases*
  • Earn 3 points per dollar spent on supermarket purchases*
  • Earn 1 point per dollar spent on all other purchases*
  • No annual fee

heard it is tough to get even with great credit score.

Shankopotomus's picture

A banker with a negative view of what Credit Unions are and do. Imagine that.

Lost Wages's picture

I'm a member of a large Utah-based credit union that I joined last fall. They replaced another credit union or two in this town that had collapsed. They have been offering business loans as long as I can remember, but I don't know how long. They have a place on their website where members can buy their repossessed cars. Do I feel safer there? Not particularly. But it felt good to leave Wells Fargo and for now their ATMs have been giving me my money as I need it. I keep a pretty large percentage of what little I have in silver, obviously, because why would credit unions really be any more ethical than a bank?

Tijuana Donkey Show's picture

Selling the repo cars themselves is better than losing more of the union (members) money. I saw a small bank manage it's REO inventory like that, turning them into rentals, etc, and didn't lose the money or destroy the neighborhood. Any usury is usury, and it can smell less, but it still smells.

Cthonic's picture

Granting the credit unions more lending powers won't help them.  Same sort of problem befell the 'uncompetitive' S&L industry; they had all sorts of lending restrictions lifted and promptly ballooned their balance sheets trying to outgrow their problems and ended up in an even larger, taxpayer-funded mess.  Whenever times get tough, people want to change the rules to give themselves some sort of legal advantage.  While I applaud anyone banking with community banks and credit unions instead of the behemoths, the problem really is one of scale in a fiat currency fractional reserve world where all the customers are loaned up.  Depository institutions should be limited to doing business to within their home fed district, and perhaps their size should even be capped at a certain percentage of originated outstanding credit at every duration in that market.  No more SIFI TBTF undercapitalized juggernauts.

patb's picture

thank you chris, I hadn't heard much on the Corporate Credit Union problem in a long time.


I remember running into the NCUA lobbyist one time and they were trying to get limits lifted on size of accounts and reduce

equity for credit unions, I just pointed out tht credit unions were more likely to collapse if they reduced their equity,

now then ever.  


That the proper role of credit unions was small lending and as such they should oeprate like little coops that they are  not like prospective empires


Encroaching Darkness's picture

It sounds like the overall destruction plan has a new page - ruin the credit unions so they don't look so good when compared to the banks. Once the Crunch destroys bank balance sheets, everyone would pull their (remaining) cash and put it in credit unions - UNFAIR COMPETITION! We MUST have a way to pull down the credit unions as well - filthy capitalists!

I have enough cash in one credit union locally to pay off expected expenses - and a low-rate credit card at another, that I've had for over twenty years. I hope the officers are smart enough to stay away from this nonsense - but then, if they crater, I'll just be out a little.

Gold&silver&platinum&palladium bullion, bitchez - held outside the banking system (any of them!)


Jim in MN's picture

Excellent article on a key topic.  Thank you.

Credit unions are one of our society's last lines of defence.  To think of losing them (or simply crippling them for a long time) is extremely disturbing.


Chuck Walla's picture

Sounds like the banks have finally found a way to kill the CU.



GetZeeGold's picture



Back in the don't know how lucky you are.


Flew into Miami Beach I had a dreadful flight.


yabyum's picture

I will third it, I have moved all but my wells fargo 401k to th CU. 98 days till I move the wells account, they can kiss my muppet ass.

Pladizow's picture

What can survive fiat?

yabyum's picture

Pm" the hand. A little food stash is also a good idea, protection for those inclined.

jeff montanye's picture

seriously, if one cannot buy food for a price, however high, what of existence as we know it is left?  

the "great depression" and, even, the weimar hyperinflation, had food available for a price.  in both cases the answer was to have hard assets, gold or shares of the miners were best.  muppets (i am one): don't let the near impossibility of total survivalist readiness stop you from preparing your portfolio: get gold.