NCUA Board To Take Supervisory Action?



The NCUA Board issued its agenda for the Board Meeting Thursday and this is scheduled at the closed session:


MATTERS TO BE CONSIDERED:

  1. Supervisory Action - Closed pursuant to Exemptions (8), (9)(i)(B), and (9)(ii).

A “Supervisory Action” is likely one of three things, NCUA plans to:


1. Conserve a credit union

2. Return a conserved credit union to member control, or

3. Issue a cease and desist to a credit union


Conservatorships


From time to time, the NCUA places a credit union into conservatorship in order to resolve operational challenges that could affect the credit union’s safety and soundness.

Conservatorship means the NCUA has taken control of the credit union. During a conservatorship, the credit union remains open, members may transact business, and accounts remain insured.


For federally chartered credit unions, the NCUA takes this action on its own; in the case of a state-chartered credit union, the state supervisory authority usually initiates the conservatorship and in most cases appoints the NCUA as agent for the conservator.


When a credit union is conserved the local Regional Director essentially serves as the Board of Directors of the conserved credit union.


Conservatorships can have three outcomes:


1. The credit union can resolve its operational problems and be returned to member control,

2. The credit union can merge with another credit union, or

3. The NCUA can liquidate the credit union.


When NCUA ends a conservatorship it first selects and seats an advisory board who will take over as the board once the conservatorship ends. A return to member control is the rarest resolution, as conservatorships more often end in merger or liquidation.



Cease and Desist Order


A Cease and Desist (C&D) Order normally requires the credit union to stop illegal or unsafe or unsound activities which caused or is likely to cause more than a minimal financial loss to, or have a significant adverse effect on, the insured credit union.


A document called Notice of Charges and Hearing sets out the specific charges and statement of facts supporting the charges. The Notice also arranges for an administrative hearing. The C&D contains the required corrective actions. The C&D action is designed to address only actions necessary to correct the most significant items.


The types of violations most likely to be remedied by a C&D Order include:


· Failure to maintain adequate books and records.

· Deficient appraisal reports.

· Transactions involving conflicts of interest.

· Inadequate due diligence.

· Inadequate control and oversight of operations.


There is a great deal of flexibility in what actions NCUA may require.


In addition to ordering a cessation of certain activities, a C&O Order may require affirmative corrective action, including:


· Making restitution or provide reimbursement, indemnification, or guarantee against loss under specific conditions.

· Restricting growth.

· Rescinding an agreement or contract.

· Disposing of any loan or asset.

· Employing qualified officers or employees.

· Taking such other action NCUA determines to be appropriate.


Orders to Cease and Desist are issued pursuant to the FCU Act.


The provisions for the C&D Order prescribe those restrictions and corrective and remedial measures necessary to correct deficiencies or violations in the credit union and return it to a safe and sound condition.


Violations of a C&D Order can provide the legal basis for assessing civil money

penalties {CMPs) against directors, officers, and other institution-affiliated parties.


A C&D Order may also be enforced through application ta a U.S. district court. Also,

a willful violation of a Final C&D Order is itself grounds for conservatorship under the

FCU Act.



What are the grounds for issuance of a Cease and Desist Order?


The grounds for a cease and desist action are set forth in the FCU Act. A C&D Order can be issued if any insured credit union or institution-affiliated party is either:


· Engaging in or has engaged in, or the examiner has reasonable cause to believe that the credit union or the persons involved are about to engage in, an unsafe or an unsound practice in conducting the business of the credit union.


· Violating or has violated, or the examiner has reasonable cause to believe that the credit union or persons involved are about to violate a law, a rule, a regulation, any condition imposed in writing by the NCUA Board, or any written agreement entered in to with the NCUA Board, as long as the agreement has been published in accordance with the FCU Act.


The FCU Act requires that the NCUA shall issue a cease and desist order requiring correction of certain Bank Secrecy Act problems, such as failure to establish a program or failure to correct a problem with its procedures that have previously been identified by an examiner.



My Thoughts


In my many years at NCUA, I learned that more often than not it made more sense to skip the Cease and Desist Order and simply conserve the credit union, so as to have total control.


Whenever fraud was present or likely, you would always jump straight to conservatorship.


Whenever I recommended a conservatorship, I always took the action late Friday so NCUA staff had the flexibility of handling issues over the weekend before opening under NCUA control.


My guess is that a conservatorship is coming…watch NCUA’s Press Releases later this week to find out…


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