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Updated September, 2009
On March 20, 2009, the NCUA placed two corporate credit unions, U.S. Central FCU and Western Corporate FCU, into conservatorship to stabilize the corporate credit union system. The cost to NCUA of doing so amounted to approximately $5.9 billion, which was taken out of the National Credit Union Share Insurance Fund (NCUSIF). To recover costs associated with NCUA stabilization efforts, all federally-insured natural-person credit unions would suffer a 69% impairment to the NCUSIF deposit that they hold as an asset on their books. Additionally, since the NCUSIF paid for the first part of the corporate credit union losses, the NCUA assessed a 30% premium on each credit union’s deposit, to restore the NCUSIF to at least its statutory minimum of 1.2% of insured shares. Each credit union would need to make the payments this year.
As a result of these assessments, approximately three-quarters of federally-insured credit unions would have negative earnings by the end of 2009. In response to this problem, NCUA issued a proposal to Congress on March 26, 2009, to create a temporary corporate credit union stabilization fund. The proposal sought an increase in the amount NCUA can borrow from the Treasury, as well as an extension of the repayment time for the assessments on each credit union to stabilize the corporate system and replenish the NCUSIF.
NAFCU worked hard to find a legislative measure for implementing NCUA’s corporate stabilization fund plan. These efforts came to fruition when Senators Dodd and Shelby introduced the fund as part of an amendment to S. 896, the Helping Families Save their Homes Act of 2009. Specifically, the legislation provided for:
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An increase in initial borrowing authority for the NCUA, from $100 million to $6 billion, and an additional $30 billion in emergency situations;
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A 7 year timeframe for the repayment of stabilization costs charged to each credit union; and
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An 8 year timeframe for the payment of share insurance fund premiums.
S. 896 also extended the temporary increase in deposit insurance set to expire at the end of 2009. Under the legislation, deposit insurance coverage will remain at $250,000 until the end of 2013.
This corporate stabilization package was included in the final version of S. 896. The bill passed under a unanimous consent agreement in the Senate, and by a bi-partisan vote of 397 to 54 in the House. President Obama signed S. 896 into law on May 20, 2009, just eight weeks after the NCUA released its corporate stabilization proposal.
In addition to S. 896, other Congressional efforts to implement a corporate stabilization plan were made. Most notably, Representative Kanjorski introduced H.R. 2351, the Credit Union Share Insurance Stabilization Act, on May 12, 2009. The bill’s provisions were essentially identical to the corporate stabilization measures contained in S. 896.
The House Financial Services Subcommittee on Financial Institutions and Consumer Credit, chaired by Representative Gutierrez, held a hearing on H.R. 2351 and corporate credit union stabilization on May 20, 2009. Jim Bedinger, Chief Operations Officer for Chicago Patrolmen’s Federal Credit Union, testified at the hearing on behalf of NAFCU. Bedinger emphasized how imperative the corporate stabilization fund was for credit unions, and discussed some of NAFCU’s proposals for improving the corporate system.
NAFCU is pleased that Congress recognized the importance of stabilizing the corporate credit union system and chose to implement the proposed stabilization fund swiftly. Although NCUA does not expect to place any more corporate credit unions into conservatorship, changes to the system are necessary to ensure that this problem does not arise again in the future.
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