Connecticut regulators investigate two credit union failures and suicide

August 10, 2008 by · Leave a Comment
Filed under: Bank Failure, Industry News 

Interesting, is the fact that this didn’t really get any press or media coverage. After reading through the article they mentioned that New London Security FCU only had 2% of its assets in loans. They mentioned that the typical ratio is 60-80% for their industry.

What it tells me at first glance is that either some fraud happened and that is why one of the senior advisers decided to commit suicide on the day the regulators took over or something else made them insolvent that they are deciding not to disclose at this time. We will try and keep tabs on this story to see if any new developments come out.

Story:

State legislators and Attorney General Richard Blumenthal want to learn more about why federal regulators quietly shut down two small Connecticut credit unions last month.

The closures in New London and Meriden have drawn scant attention, despite the fact that the 82-year-old investment advisor to the New London Security Federal Credit Union jumped to his death only hours after federal officials declared his institution insolvent on July 28.

The National Credit Union Administration released few details on the case, other than to say New London Security FCU was founded in 1936, had 365 depositors and $12.7 million in assets. Records show at least one unusual circumstance: it had only 2 percent of its assets in loans, compared with ratios of 60-80 percent that are more typical in the industry.

The Meriden F.A. Federal Credit Union, which was closed July 16, was even smaller. It had 206 customers and assets of $337,968.

Both Connecticut credit unions were miniscule compared with IndyMac, the California bank that set off a national wave of depositor anxiety last month when it became the third largest bank failure in U.S. history. It had assets of $31 billion.

“It’s an unfortunate set of circumstances that this has occurred on the heels of the IndyMac failure,” state Sen. Bob Duff (D-Norwalk), chairman of the banking committee, said of the Connecticut credit union failures. “From an oversight standpoint it’s something we need to continue to watch.”

Duff and fellow banking committee member Rep. Ryan Barry (D-Manchester) asked state Banking Commissioner Howard Pitkin to give them information on the soundness of state-chartered banks and credit unions.

“We don’t want to set off a panic in Connecticut, but it’s important that we know what’s going on. We have to stay ahead of the game,” Duff said.

In a letter of response, Pitkin said Connecticut banks continue to perform well, in spite of economic challenges. “Both state and federally chartered banks are well capitalized, have good asset quality and can contend with current conditions,” Pitkin wrote.

Safety and soundness ratings given by BankRate.com support Pitkin’s point. On a scale of 1-to-5 (5 being the strongest), most of the 20 largest Connecticut-based banks are rated 4 or 5. Not one was rated either 1 or 2.

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