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NCUA approves stabilization efforts for corporates
ALEXANDRIA, Va.(1/29/09)--The National Credit Union Administration (NCUA) Wednesday took steps to “enhance and support” the corporate credit union system. The system, NCUA noted, is facing liquidity and capital strains due to extraordinary market disruptions and the current economic climate. Corporate credit unions provide investment and liquidity services to consumer-owned natural person credit unions. The agency said its three-pronged initiative will provide natural person credit unions important safeguards by drawing upon the strong, aggregate capital already within the credit union system. Under the actions approved at a special closed meeting, the NCUA will:
* Guarantee uninsured shares at all corporate credit unions through February 2009, and establish a voluntary guarantee program for uninsured shares of all corporate credit unions through Dec. 31, 2010; * Issue a $1 billion capital note to U.S. Central Corporate FCU (U.S. Central); * Issue an Advance Notice of Public Rulemaking (ANPR) on restructuring the corporate credit union system; and * Declare a premium assessment to restore the National Credit Union Share Insurance Fund (NCUSIF) equity ratio to 1.30 percent. The premium will be collected in 2009.
The $1 billion injection is intended to provide reserves to offset anticipated realized losses on some mortgage- and asset-based securities held by U.S. Central, known as the “corporates’ corporate." U.S. Central announced it expects to report a net loss of approximately $1.1 billion for the year ended Dec. 31, 2008, when it makes public its financial results during the first week of February. U.S. Central attributed the net loss to charges for other-than-temporary impairments (OTTI) of $1.2 billion. (See related News Now story: "U.S. Central to release '08 financials next week.") Regarding the ANPR, the NCUA set a 60-day comment period, which will begin when the document is published in the Federal Register, likely within the next week or so. The NCUA said it is seeking input on “the entire range of areas” of potential reform and restructuring for the corporate system, and the ANPR specifies the following: The role of corporates in the credit union system, corporate capital, permissible investments, credit risk management, asset liability management, and corporate governance. The NCUA previously approved an action that will, in effect, change the way current outstanding loans from the Central Liquidity Facility (CLF) are booked by corporate credit unions, as well as by U.S. Central. At its monthly board meeting last week, the NCUA Board voted 2 to 1 to delegate to CLF President Owen Cole authority to sign an amendment to the Repayment, Security and Credit Reporting Agreement currently in place between U.S. Central and the CLF. Cole could also amend an Assignment Agreement between U.S. Central and the CLF. The Credit Union National Association (CUNA) recently established a Corporate CU Task Force, which is meeting in Washington, D.C. today. The task force will focus on developing CUNA's response to the ANPR, said CUNA Deputy General Counsel Mary Dunn Wednesday. CUNA's analysis of the ANPR and the NCUA’s other actions regarding corporate credit unions will be available on CUNA's Regulatory Advocacy website soon.
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