WASHINGTON (10/15/08)—Amid fast-breaking developments in the government’s evolving actions to address concerns with the functioning of the country’s credit markets, the Credit Union National Association (CUNA) continues to press for clarifications regarding how each of the administration’s steps affects credit unions. The U.S. Treasury Department has indicated it will be providing more details of the Troubled Asset Relief Program (TARP) soon, and CUNA will be analyzing that information for credit unions. Meanwhile, CUNA has drawn up the following summary of recent actions. On the Federal Deposit Insurance Corp.’s (FDIC’s) decision to provide full deposit insurance coverage for non-interest bearing transaction accounts until December 31, 2009:
* These are accounts that, for example, businesses use to fund their payroll payments. Participating institutions will be assessed a 10-basis point insurance surcharge. * The initial announcement from the administration indicated only that non-interest bearing transaction accounts insured by the FDIC would be eligible for this coverage. * CUNA was in immediate contact with the National Credit Union Administration and the Treasury to clarify whether such accounts at credit unions will have the same coverage under the National Credit Union Share Insurance Fund (NCUSIF). CUNA will continue to press for clarification, which in CUNA’s view should be that such credit union accounts have the same full insurance converge through the NCUSIF
Regarding a new capital infusion program for certain banks, bank holding companies, savings and loans and thrift holding companies that agree to participate by November 14, 2008 and whose primary regulator confirms their eligibility:
* Under this program, the Treasury will make available up to $250 billion of the $700 billion authorized under the Emergency Economic Stabilization Act of 2008 to purchase preferred stock in these institutions. * The minimum subscription amount would be 1% of an institution's risk-weighted assets up to the lesser of $25 billion or 3% of risk-weighted assets. * The shares will qualified as Tier 1 Capital and will pay 5% for each of the first five years and then increase to 9% each year. The shares would generally be non-voting and any institution that sells shares to the Treasury, under this program, will have to agree to the executive compensation limitations similar to those under the Troubled Asset Relief Program. *Under the program, Treasury will receive warrants to purchase shares of common stock of the institutions valued at 15% of the amount of the preferred stock.
On a conference call today with senior Treasury officials in which CUNA was a participant, it was clarified that the administration is seeking ways institutions such as S Corporation banks and mutual thrifts could participate. While credit unions are not included in the definition of institutions that may be eligible, CUNA is discussing the ramifications of this program with NCUA and other policymakers. Under another initiative, the FDIC will provide debt guarantee for certain newly issued unsecured senior debt of all FDIC insured banks and thrifts, as well as such debt of their holding companies. This will include promissory notes, commercial paper, inter-bank funding, and the unsecured portion of secured debt, and:
* Coverage is limited to June 30, 2012, and banks will be charged a 75-basis point fee to protect debt issues; and * There will be enhanced supervision of institutions that accept the guarantee, which will expire on June 30, 2009.
On the conference call, Treasury officials indicated they are considering whether community banks that do not have senior debt could be able to receive guarantees for some of their debts. CUNA is also discussing the ramifications of this program with policymakers. Finally, regarding the Federal Reserve Board's purchase of commercial paper, beginning October 27:
* The Federal Reserve's Commercial Paper Funding Facility will be able to purchase commercial paper of 3-month maturity from "high-quality" issuers. * The Facility is designed to support the commercial paper market as needed and will provide funding for eligible entities that use commercial paper to help finance their operations.