NCUA News Release

New NCUA Measures will Strengthen the Protection of Credit Unions from Brokered CD Fraud

Action Comes Following Problems Associated with
Bentley Financial Services

Alexandria Va. - - March 26, 2003 – The National Credit Union Administration (NCUA) will implement new measures designed to strengthen the agency’s oversight and better implement credit union protections against brokered CD fraud, according to NCUA Chairman Dennis Dollar.

The measures are a result of a three month study initiated in December 2002, when Board Member Deborah Matz requested a review of NCUA examination procedures and asked for recommendations for changes to reduce future fraud losses in connection with brokered CDs. This request, supported by the entire NCUA Board, was made in an effort to prevent credit union losses resulting from situations comparable to Bentley Financial Services.

“Almost 100 federally insured credit unions incurred losses as a result of fraudulent certificates of deposit brokered by Bentley Financial Services, Inc. and other credit unions have been victimized by a few CD brokers in the past,” said Matz.

“I commend the NCUA leadership for taking this issue seriously and for looking carefully at ways we can be even more effective in fighting such fraudulent activities,” said Chairman Dollar in announcing the measures. Elements of the plan announced today include:

1. Credit unions will be required to report on quarterly call reports outstanding balances of CDs purchased through or from a broker-dealer.
2. NCUA will generate risk reports that identify credit unions with large concentrations of brokered CDs and significant increases in brokered CD portfolios.

3. The NCUA Examiner’s Guide will be amended to improve the guidance provided to examiners on brokered CDs, particularly concerning due diligence reviews of brokers and safekeepers.

4. NCUA enhanced investment workpapers in AIRES, NCUA’s automated examination program, to assist examiners in reviewing brokered CDs.

5. NCUA will increase training on brokered CDs for examiners to heighten awareness of the risk associated with such investments.

“I believe this plan, developed by NCUA staff, will assist the agency and credit unions in implementing better protections against brokered CD fraud. I commend Ms. Matz for bringing this issue forward, and want to thank NCUA staff for their involvement in developing a resolution,” said Vice Chair JoAnn Johnson.

“We can mitigate future risks associated with brokered CDs by focusing on our examination and supervision policies and procedures. I am pleased that the staff has identified a number of steps that can help prevent losses to credit unions that purchase brokered CDs, but I also believe that due diligence by credit unions is the first line of defense against fraud,” said Matz.

The National Credit Union Administration, governed by a three-member board appointed by the President and confirmed by the Senate, is the independent federal agency that charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates the National Credit Union Share Insurance Fund (NCUSIF), insuring the savings of 80 million account holders in all federal credit unions and many state-chartered credit unions.