Removing Barriers Blog

CUNA: NCUA Should Allow Stakeholder Input on Maturing NGNs
Posted November 04, 2016 by Ryan Donovan

A great deal of new information has emerged recently concerning the NCUA’s program to deal with the cost of the conservatorships of five corporate credit unions during the financial crisis of the past decade. The good news is that credit unions can look forward to partial refunds on assessments, and refunds of some or all of their extinguished capital in probably three of the five conserved corporates.  The bad news is these refunds are unlikely until 2020 or 2021. 

We believe that credit unions should have a significant say in how and when these liquidations should occur. It is after all credit unions who will benefit or suffer from optimal or ill timed liquidation of the securities because gains or losses on those transactions will flow right through to credit unions. At the conclusion of an NCUA report on this matter are the following statements:

“As the liquidating agent, NCUA is responsible for ultimately disposing of the failed corporate credit unions' securities collateralizing the NGNs. NCUA will monitor market conditions and evaluate individual securities going forward to determine the optimal disposition strategy for each remaining security. In addition, NCUA will continue considering various options for large-scale disposition strategies at the end of the Corporate System Resolution Program. NCUA plans to engage stakeholders before implementing any large-scale plans that materially affect the timing and amount of potential refunds to federally insured credit unions.” (emphasis added)

CUNA appreciates NCUA’s stated intention to include credit union stakeholders in the asset liquidation decision. This will require that credit unions are fully informed of any trade-offs between faster refunds and the size of those refunds, and have a say in the outcome. Indeed, we will hold them to it. In that regard, we believe an appropriate trail run in anticipation of the major activity of 2020 would be for NCUA to engage in that stakeholder consultation in 2017 when a significant amount of securities become available for liquidation.

That is why we wrote the agency this week to ask them to do just that.  We understand that this may be discussed in briefing at an upcoming NCUA meeting; we will encourage the agency to make this the first -- not the last -- step in the process.  

Bill Hampel has done yeoman's work on a deep dive into this matter which can be found here