Advisories
Advisory 12
Minimum Levels Of Equity/Intervention
The Credit Union Movement has seen a significant
improvement in the level of equity in credit unions
since the equity-building program was introduced.
As at September 30, 1999, only nine credit unions
had total equity of less than 5%. All of these credit
unions have filed equity building programs with
us and the Superintendent of Credit Unions. Only
three credit unions have less than 2.5% equity and
two of these have voluntarily agreed to liquidate.
As you are aware, credit unions are required to
maintain a minimum level of equity of 5%. The Nova
Scotia Credit Union Deposit Insurance Corporation
(CUDIC) is attempting to become more proactive with
its intervention system. The goal is the earlier
identification of problems and ensuring credit unions
take corrective action at an earlier stage.
A position paper regarding minimum levels of equity
was accepted by the Boards of Credit Union Central
of Nova Scotia (CUCNS) and CUDIC and was presented
at an Annual General Meeting of CUCNS.
In line with this paper and the above goal, effective
January 1, 2000, CUDIC will implement a program
of more aggressive intervention which will include
the three stages which have been in place for some
years - Early Warning List (EWL), Performance Improvement
Plan (PIP) and Supervision. The more aggressive
intervention will primarily target credit unions
whose equity has fallen below 2.5%, as well as any
credit union which experiences a significant decrease
in equity. The placement and removal of credit unions
on the EWL will be a decision of CUDIC's management,
while the placement and removal of credit unions
on PIP will be a decision of the Board of CUDIC.
Part XIV of the Credit Union Act deals with the
issue of Supervision and the related authority and
powers of the Supervisor. The provisions provide
the Supervisor with the ability to ensure corrective
action is taken, but it does not automatically eliminate
the Board of Directors. However, Supervision does
result in the loss of autonomy by the credit union.
CUDIC's intent will be to work with the Credit Union
Board to ensure a solution is found. Under Supervision,
we would expect the corrective action to be taken
by the Board and would work with them to ensure
it is successful.
Credit unions should not expect any change in its
relationship with CUDIC provided:
1. An acceptable equity building program has
been filed with our office; and
2. The credit union does not fall short of its
equity building targets by more than 0.25% in
any one year until it has exceeded the minimum
equity level.
Should credit unions show a significant drop in
equity, they will be given sufficient notice during
which time they will have the opportunity to advise
CUDIC as to the cause of the decrease in equity
and the proposed corrective action.
In Summary:
- CUDIC's management will determine whether the
credit union will be placed on the EWL;
- CUDIC's Board will determine whether the credit
union will be placed on the PIP or a request for
Supervision should be made. The Office of the Superintendent
of Credit Unions has indicated that the application
for Supervision will be reviewed and responded to
on a priority basis.
- The Minimum level for aggressive intervention
of 2.5% equity will be reviewed regularly and increased
from time to time as the health of the system permits.
- This Advisory is primarily addressed to credit
unions with equity below 5% and, particularly, to
credit unions with less than 2.5% equity. However,
CUDIC will intervene in credit unions with equity
above 5% should they experience a significant drop
in their level of equity.
December 1999
Return to Advisories
