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WesCorp risk management was inadequate NCUA says
ALEXANDRIA, Va. (11/22/10)--The National Credit Union Administration (NCUA) has found that the management of failed Western Corporate Federal Credit Union (WesCorp) “did not implement appropriate risk management practices to adequately limit or control significant risks in its investment strategy” before its ultimate conservatorship in early 2009. This and other findings are detailed in the NCUA Office of Inspector General’s (OIG) report, which was released on Friday. The goals of the review were to determine why NCUA placed WesCorp under federal conservatorship and assess the NCUA‘s supervision of WesCorp, the OIG said in its report. To complete the review, the OIG analyzed NCUA examination reports, supervision reports and other correspondence, interviewed NCUA staff, reviewed NCUA policies, procedures and financial statements, and reviewed WesCorp’s policies, procedures, and investment documents. The review found that WesCorp’s excessive investments in privately-issued residential mortgage backed securities resulted “in a significant concentration risk, and left WesCorp increasingly vulnerable to significant credit risk, market risk, and liquidity risk through the portfolio‘s exposure to economic conditions in the residential real estate sector.” The OIG report also shifted some blame to the NCUA, saying that the NCUA’s Office of Corporate Credit Unions (OCCU) “did not adequately and aggressively address WesCorp‘s increasing concentration” of these investments. “OCCU examiners did not have the regulatory leverage to limit or stop the growth” of those investment purchases. Early action by the NCUA “would have likely mitigated WesCorp‘s severely distressed financial condition and expected loss,” potentially averting the NCUA’s conservatorship of WesCorp. The OIG recommended that the NCUA “provide corporate credit unions with more definitive guidance on limiting investment portfolio concentrations” in the future.
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