CUs Jolted by Rescue Plan and Formulate Cheaper Alternatives

WASHINGTON — Concerned about the impact on their balance sheets at a time of economic tumult, natural person credit unions and their lobbyists are coming up with what they see as less costly alternatives to NCUA’s plan for rescuing corporate credit unions.At the core of their concern is a potential 56-basis point premium for the share insurance fund to offset the costs of guaranteeing $80 billion worth of credit union deposits at corporate credit unions.The NCUA’s initial estimate of the cost of guaranteeing the deposits is $3.7 billion but that could change based on additional factors such as the result of the outside analysis of the bonds held by corporates being done by PIMCO at the request of the NCUA. That could impact the amount of the proposed premium.The other key part of the rescue plan was the NCUA’s injection of $1 billion of capital into U.S. Central after it reported a $1.1 billion loss for last year.“Here we try to run a conservative shop and now we have this kind of black eye hitting us-something that is out of our control,” said Paul Regimbal, president/CEO of the $170 million Catholic CU of Yakima, Wash., when asked about the NCUA plan.The leaders of CUNA and NAFCU said they have been discussing alternative sources of funds with NCUA officials and have found them “receptive” to suggestions though noncommittal. Both associations had record attendance at events last Wednesday-a CUNA teleconference and NAFCU Webinar-that featured NCUA officials explaining the details of the program.CUNA President/CEO Dan Mica said his association has been inundated with complaints about the NCUA plan and received hundreds of suggestions. He said the plan would “inflict serious damage on credit union financial statements” even though there are many less costly alternatives.Among CUNA’s suggestions are: have natural person credit unions to corporates either by member capital or paid-in capital; have natural person credit unions provide loans to corporates by subordinated notes; have natural person credit unions make term deposits in corporates; make greater use of the Central Liquidity Facility; allow natural person credit unions to buy corporate credit union assets; allow funds from the Troubled Asset Relief Program to be used to help corporate credit unions.CUNA Chief Economist Bill Hampel said that 20% of all credit unions had a negative return on assets as of Sept. 30, but if the premium had been imposed, that number would have increased to 63% He also said the premium would increase the number of credit unions with a net worth ratio of under 6%-the level below which credit unions near capital trouble-from 75 to 112. The number of credit unions with a net worth ratio of more than 9% would be reduced from 7,176 to 6,793.NAFCU President Fred Becker said the approximately 100 credit union CEOs he has spoken to or e-mailed with are “extremely concerned, more than on any other issue during my nine years in this job.”Among the alternatives he and his staff have suggested include: borrow funds from the Central Liquidity Facility; ask Congress to let the CLF infuse capital into corporate credit unions; give corporate credit unions access to the Federal Reserve’s discount window; use TARP funds to assistant corporate credit unions; ask Congress and the Obama administration to create an entity to buy bad assets from corporate credit unions.NCUA Chairman Michael E. Fryzel told Credit Union Times that his agency looked at other alternatives to imposing a premium and is open to suggestions but said the long-term soundness of the corporate system is of paramount importance.“It may cost a bit and hurt in the short run, but we want to ensure that [natural person] credit unions don’t take a hit if they don’t have to,” he said.Fryzel has lobbied hard to get the Treasury Department to make TARP funds available to credit unions. He had no luck with the Bush administration, but the Obama administration has said it would consider the idea.While the idea of giving credit unions access to TARP funds it is controversial within the credit union movement and some think it might jeopardize their tax-exempt status.State Employees’ Credit Union President/CEO James Blaine said the credit union movement has “lots of smart minds and goodwill” and can solve this problem without going to the last resort of “taxpayer bailout money.” Blaine’s credit union, the nation’s third largest in assets, is located in Raleigh, N.C.Mica said he would prefer to see credit unions solve the problem themselves, but they shouldn’t rule out getting TARP funds because “it would be irresponsible not to have a backup. It would be like not having insurance.”–[email protected]