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NCUA Board Member Speaks to Oregon Credit Union CEOs

ALEXANDRIA, Va. (Dec. 8, 2017) – National Credit Union Administration Board Member Rick Metsger today reminded credit unions the National Credit Union Share Insurance Fund may be required to increase loss reserves as the values of taxi medallions decline.

“Prices for New York taxi medallions at two recent public auctions have been considerably lower,” Metsger said. “That, combined with a continued increase in already high delinquency rates on medallion loans, suggests the Share Insurance Fund’s reserves may have to increase in the very near future.”

Metsger spoke today to the Oregon Department of Financial Services CEO roundtable in Salem, Oregon. His remarks covered various issues related to credit union regulation and the Share Insurance Fund. 

Metsger said the NCUA issued a Letter to Credit Unions in 2010, warning of concentration risk, and the agency issued a more specific letter on taxi medallion lending in 2014.

“We have known, and warned about, this risk for some time,” Metsger said, “but the bill is about to come due. Unfortunately, a lot of credit unions that followed supervisory guidance and lent prudently will have to pay for losses incurred by a small number of credit unions that gambled on a market that was disrupted and a bubble that burst.”

Metsger also said the NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act that specifically exempted credit unions chartered for the purpose of making, or had a history of primarily making, member business loans, from the statutory member business lending cap. A Senate report on that legislation specifically noted taxi medallion lending was an example of loan activity that was exempt from the cap.

“Most credit unions cannot put more than 12.25 percent of their assets into member business lending,” Metsger said, “but the taxi medallion credit unions were able to put up 100 percent of their assets.”

Two taxi medallion credit unions, Melrose and LOMTO, are currently operating under NCUA conservatorship.

Metsger added, “Our staff continues to carefully evaluate the loan portfolio at the conserved credit unions. This evaluation factors into what the share insurance fund reserves need to be, and in turn any effect on the equity ratio and potential share insurance fund distribution for 2018.”

“This,” he added, “reinforces why we needed to increase the fund’s normal operating level this year, to account for any significant losses that otherwise might have required a sudden and significant premium charge to credit unions.”

Metsger also talked about the NCUA’s risk-based capital rule, scheduled to go into effect in January 2019.  

“A major principle of financial regulation is that all risks are not equal, and one size does not fit all,” Metsger said. “That is why the U.S. and all major industrial nations have risk-based capital standards. We seek to minimize the risk that a few credit unions that want to gamble with other people’s money will lose their bets and pass the costs onto other credit unions and their members. I am happy to consider changes in our risk-based capital rule that will strengthen the system. But, trade groups seeking to repeal the rule completely ignore the fact that the adoption of a risk-based capital rule is both required by federal law and good public policy that protects credit union members. The situation with the taxi medallion credit unions only adds an exclamation point to this fact. It is a prime example of why we need a strong risk-based capital system.”