WASHINGTON (2/11/09)—The cost and structure of federal regulators’ current plan to stabilize corporate credit union liquidity could wreak havoc on community development credit unions (CDCUs), according to a national group representing those low-income credit unions. The National Federation of Community Development Credit Unions (Federation) said this week that CDCUs are concerned that the plan could result in reduction of their services, loss of staff, and “the outright demise of many low-income credit unions.” Writing to the National Credit Union Administration (NCUA) about its intention to fund its corporate stabilization plan by assessing a share insurance premium, President/CEO Clifford Rosenthal of the Federation said his members recognize the gravity of the corporate’s situation. However, he argued that CDCUs are particularly vulnerable to the cost of the NCUA’s plan because they serve “those hardest hit by the recession…people who under the best of circumstances have meager financial reserves, few resources, and limited access to affordable credit from the banking system.” The Federation said it favors allowing corporate credit unions to access the Cental Liquidity Facility (CLF) directly but suggested better solutions may yet be devised. According to Federation analysis, under the NCUA’s funding plan:
* Approximately 62% of CDCUs would have negative income in 2009; and * An estimated 18% would fall below the “well capitalized threshold of 7% net worth, while 10.1% would fall below the “adequately capitalized” threshold of 6%.
“While the economic impact of the NCUA proposal is not unique to CDCUs, damage that would be sustainable for other credit unions could prove irreparable or fatal for many CDCUs,” Rosenthal wrote. “Unless and until a better solution can be devised – one that can avoid the harm to low-income and small credit unions -- the Federation supports the effort to allow corporate credit unions to access the Central Liquidity Facility directly,” Rosenthal wrote. The Federation maintained that the lack of access to the CLF seems “an anomaly that can no longer be sustained.” “Infusing funds into the corporates directly from the CLF is a wholly appropriate use of the federal financing system, and is likely to prove far more effective than the indirect method that NCUA has employed recently,” he added. The Credit Union National Association (CUNA) has underscored that the credit union system must pursue a range of viable solutions to address the corporate credit union problem. (See related story: Mica tells CUs range of solutions needed on corporates) CUNA recognizes a legislative solution centered on the CLF is one possibility, but advises that it is necessary to look at whether a regulatory as well as a legislative solution would address the problem. Use the resource link below to access a compilation of CUNA corporate credit union information.