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About the Corporate CU Stabilization Program
The National Credit Union Administration (NCUA), which regulates all federally-insured credit unions, has proposed a self-funded bailout of corporate credit unions, which will force every credit union in the nation to invest 62 basis points of their total assets to protect the liquidity needs of the corporate credit union system. While this plan highlights the credit union system's willingness to correct itself cooperatively and without additional cost to American taxpayers, the result of the mandatory investment will be devastating for many small CDCUs.
Last year, CDCUs nationally posted approximately $12.75 million in net income. Assuming all factors remain equal, a mandatory investment of 62 basis points translates into a $28 million and would represent a net loss for CDCUs of $15.3 million in 2009, wiping out the modest gains made this year. The fallout from the economic downturn, coupled with the lack of capital, will result in a rapid reduction in community wealth, and for CDCUs, a crippling loss in earnings. We fear these challenges could permanently shutter dozens of CDCUs nationally.
In order to advocate effectively for the needs of our member institutions, we are trying to identify the extent to which this will impact CDCUs. We encourage CDCUs and low-income credit unions to submit any materials, which highlight the scope of impact this measure will have on your credit union and your community. Below is a sample letter sent to the Treasury Department and NCUA from Saguache County Credit Union CEO Rick Wertz. This is a great example of the type of information we need in order to advocate for the needs of CDCUs in this difficult time.
CDCUs wishing to share information with the Federation on how the proposed stabilization plan will affect your credit union and your community, should email us at: email@example.com. (Please include "corporate bailout" in the subject heading.)
NCUA Corporate Stabilization Proposal Overview
Here is a brief overview of the NCUA corporate rescue proposal, the part that affects our member credit unions:
Since the United States’ corporate credit union system is in financial difficulty, NCUA is directing that all federally-insured natural person credit unions accept a charge to both their existing deposit with the NCUSIF (National Credit Union Share Insurance Fund), and a substantially increased share deposit insurance premium for the coming year. The effect for each federally-insured credit union will be significant, and will depend upon how much federally insured shares any particular credit union has compared to its total assets.
Neither NCUA nor the corporates’ accountants know, in fact, exactly how much financial difficulty the corporates are in, so future charges to our members’ credit unions reserves and earnings are possible, or, on the other hand, perhaps the amount proposed by NCUA will be too high and can be reduced, thus reducing the need for charges against our members’ reserves and earnings.
As things stand right now, if NCUA’s plan goes through, our member will lose more than ½ of 1% of their net worth (in other words, if net worth was 7% before, it would be less than 6.5% now, of assets). Also their net income (return on assets) for 2008 or 2009, depending upon when they decide to book it, will go down by over 6/10ths of 1% (of assets, on a yearly basis), which is more than many of our members make, so they will have negative income.
Credit unions under $10 million in assets are not required to follow GAAP (Generally Accepted Accounting Procedures), but even spreading out these charges, balance sheets and income statements will be substantially affected.
Federation Board Addresses Corporate Stabilization
(February 24, 2009 – Washington, DC) Meeting in Washington, DC, the Federation's Board of Directors have adopted resolutions supporting measures to sustain the credit union system; enhance the viability and capacity of low-income credit unions; and aid low- and moderate-income families hard hit by the economic crisis.
“We are concerned about the consequences of reduced net worth and return on assets (ROA) that would necessarily result from the measures that the National Credit Union Administration (NCUA) has proposed,” said Federation President/CEO Cliff Rosenthal. To mitigate those effects, the Federation supports the following legislative and other proposals that have been advanced.
- Corporate credit unions should gain direct access to the Central Liquidity Facility for liquidity and capital.
- TARP funds should be made available to the credit union movement.
- Share insurance premiums should be spread out over as long as eight years, on parity with other financial institutions.
The Federation board also endorsed the “Helping Families Save Their Homes in Bankruptcy Act of 2009" (S. 61/H.R. 200).
To read the full press release, please click here.
Impact of Corporate Stabilization Proposal on CDCUs
Please Note: The postings below are for discussion purposes only, and do not necessarily represent the policy positions of the Federation.
- Albright Consulting Services Letter to NCUA RE: Corporate Stabilization (Feb 2009) - Former NCUA corporate examiner Edward Albright weighs in on NCUA's proposed stabilization plan.
- Winthrop FCU (Winthrop, MA) - $42.4 MM in assets, 5,209 members.
- Sauguache County CU (Moffat, CO) - $24.5 MM in assets, 3,082 members, rural CDCU.
- Lower East Side People's FCU (New York, NY) - 22.6 MM in assets, 5,389 members, urban CDCU.
- Queen of Peace Arlington FCU (Arlington, VA) - $1.6 MM in assets, 497 members, faith-based CDCU.
Resources and Information for CDCUs